Informist, Friday, Apr 21, 2023

By Kasthuri Akhil

MUMBAI – Government bond prices ended sharply up after the higher-than-expected cut-offs at the 330-bln-rupee auction. Traders covered their short bets in the secondary market after the release of the auction result, which led to a jump in prices, especially of the 2033 paper, dealers said.

The 10-year benchmark 7.26%, 2032 bond ended at 100.49 rupees, or 7.19% yield, against Thursday's close of 100.25 rupees, or 7.22% yield. The 7.26%, 2033 bond ended at 100.71 rupees, or 7.16% yield, against 100.40 rupees, or 7.20% yield the previous day.

"The volume of 2033 bond has reached where it had to because of buying momentum," a dealer at a state-owned bank said. “However, the 7.18% level (yield on the 7.26%, 2032 bond) has still not broken and is expected to sustain.”

The yield on the 10-year benchmark 2032 bond touched 7.18% today for the first time since the policy outcome on Apr 6. Traders expected the yield to remain above the psychologically crucial 7.18% mark unless a concrete factor breaks the level, dealers said. 

The 2033 bond traded within a narrow range of 7.18-7.24% yield since the April review, but as soon as the yield fell below 7.18% today, traders rushed to place large bids on the paper. Moreover, dealers speculated that ahead of the auction, state-owned banks had kept a considerable volume of the 2033 paper with themselves, which caused a situation of short squeeze. A short-squeeze is a scenario when there is a scarcity of bonds in the market to cover the short positions. 

With fresh debt supply at today's auction, traders grabbed the opportunity to place large bets and cover their positions causing a sharp rise in prices, dealers said. “The market is being very bullish, and the momentum is expected to continue,” a dealer at a private bank said. “After today, market might now consider 7.26% 2033 bond as the new benchmark.” 

On one hand, some dealers said that traders covered short bets on the 2033 paper after the auction because they had been facing a scarcity of the paper to cover their bets in the last two trading sessions. The Clearcorp Repo Order Matching System showed that the overnight repo rate in the paper had fallen to the theoretical minimum of 0.01%. 

On the other hand, some dealers said that traders sought to cover their bets in the secondary market instead of the auction because a market participant may have bid aggressively and picked up a majority of the auction stock. Dealers speculated that foreign banks were the major bidders at the auction for the 2033 and 2052 paper as well. 

Domestic traders have been stocking up on longer-term papers in the past few days to fulfil their bond forward-rate-agreement requirements, dealers said. 

Meanwhile, the yield on the 7.38%, 2027 paper fell below 7% for the first time since Apr 10 after the cut-off of the new five-year 7.06%, 2028 paper came in as per market expectation. 

The Reserve Bank of India set the cut-off price on the 2028 paper at 100.07 rupees; 100.43 rupees on the 2033 bond; and 99.82 rupees on the 2052 paper. The cut-off on the 2028 paper was seen at 100.04 rupees, 100.33 rupees on the 2033 bond, and 99.75 rupees on the 2052 paper according to an Informist poll.

In early trade, bonds traded in a thin band as traders assessed the implications of the minutes of the April policy meet, released Thursday, dealers said. The minutes showed shared concern among all committee members regarding the likelihood of climate-related risks causing inflationary pressures, now as the monsoon season draws closer.

Traders maintained caution as the minutes gave mixed cues about the future course of rate action as panel members expressed willingness to hike rates further, if needed, dealers said. Largely, traders still expect the pause in rate hikes to continue for a while, dealers said. 

A benign rate view, along with higher-than-expected cutoffs at the weekly auction, boosted the market sentiment, causing trade volumes to spike. According to data on the Reserve Bank of India's Negotiated Dealing System--Order Matching platform--the turnover was 794.60 bln rupees, compared with 384.65 bln rupees on Thursday. Meanwhile, trades aggregating 300 mln rupees were settled with the digital rupee pilot in six deals today.

OUTLOOK

Gilts are not traded on Saturdays.

On Monday, bond prices are seen steady due to a lack of significant domestic cues, dealers said.

Traders may also take cues from overnight movement in US Treasury yields and crude oil prices.

The yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.14-7.23%. 

India Gilts: Sharply up; 2033 bond likely had big bidder at auction

NEW DELHI--1540 IST--Government bond prices rose sharply after traders covered short bets as sentiment turned robust due to a higher-than-expected auction cut-off price for the 7.26%, 2033 bond, dealers said.

For the 2033 bond, the RBI set a cut-off price of 100.43 rupees, against 100.33 rupees estimated in an Informist poll. The auction, which will put the 10-year bond's outstanding at 520 bln rupees on Monday, is likely to elevate it to the benchmark gilt next week, dealers said.

Traders had to cover short bets in the secondary market, despite the 140 bln rupees of fresh supply, as a large bidder may have picked up majority of the auction stock, dealers said. The central bank accepted only 30-40 bids for the 2033 bond, compared with 82 at its last auction on Apr 6, according to some primary dealerships.

"The short bets were not that large, but it doesn't look like the auction distributed the supply evenly," a dealer at primary dealership said. "The concern for traders is always the fresh supply, and if that is being taken care of then there's no issue running up the price."

Traders had placed only 30-40 bln rupees of short bets in the 7.26%, 2033 paper heading into the auction, but the aggressive bids priced them out of the debt sale. Foreign banks were also speculated to have picked up some stock in the 2033 paper, dealers said.

With the policy rate seen steady for an extended period, traders were confident about gilt prices rising and stocked up on debt as the Monetary Policy Committee's next action is seen to be a rate cut, dealers said. After trading in a narrow band of 7.18%-7.24% yield since the policy decision on Apr 6, traders placed large bets once the yield on the 2033 bond fell below the psychologically crucial 7.18% mark.

"Traders have more stock in their hand, so it makes sense for them to run prices up; earlier, the 2033 bond was with public sector banks," a dealer at a private bank said. "The range has broken, and it is a structural long bet that traders weren't able to make so far in the 10-year segment."

With demand for the new 7.06%, 2028 gilt on expected lines at the auction, the yield on the five-year benchmark 7.38%, 2027 bond fell under 7% for the first time since Apr 10. The yield on the outgoing 10-year benchmark 7.26%, 2032 gilt was at its lowest since the policy outcome on Apr 6.

According to data on the Reserve Bank of India's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 660.75 bln rupees at 1540 IST compared with 269.70 bln rupees at 1530 IST on Thursday.

For the rest of the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.17-7.25%, and the yield on the 7.26%, 2033 bond is seen at 7.13-7.24%. (Aaryan Khanna)

India Gilts: Surge after higher-than-expected auction cutoffs

MUMBAI—-1430 IST—-Prices of government bonds surged after the cut-off prices at the 330-bln-rupee auction came in higher than the market's expectations, dealers said.

"People must have covered their short bets after the result as they wouldn't have been able to cover at the auction, so prices went up," a dealer at a private bank said. "Today and on Thursday as well, CROMS (Clearcorp Repo Order Matching System) showed only 0.01% (rate on the 2033 bond)"

Traders faced a scarcity of the 2033 bond to cover their short bets on the paper in the past two days, dealers said. Since Wednesday, the overnight repo rate in the paper had fallen to the theoretical minimum of 0.01% on Clearcorp Repo Order Matching System, signalling a scarcity of bond.

With the new debt supply at the auction, traders grabbed the opportunity to cover their bets, pushing the price of the 2033 bond sharply up, dealers said.

The Reserve Bank of India set the cut-off price on the 2028 paper at 100.07 rupees; 100.43 rupees on the 2033 bond; and 99.82 rupees on the 2052 paper. The cut-off on the 2028 paper was seen at 100.04 rupees, 100.33 rupees on the 2033 bond, and 99.75 rupees on the 2052 paper accordng to an Informist poll.

Further, dealers speculated that the firm demand for the long-term paper was particularly driven by foreign banks. Domestic traders have been stocking up on longer-term papers in the past few days to fulfil their bond forward-rate-agreement requirements, dealers said. 

According to data on the Reserve Bank of India's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 500.15 bln rupees at 1430 IST compared with 225.30 bln rupees at 1430 IST on Thursday.

For the rest of the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.17-7.25%, and the yield on the 7.26%, 2033 bond is seen at 7.13-7.24%. (Kasthuri Akhil)

India Gilts: In thin band; traders await 330-bln-rupee auction cutoffs

MUMBAI--1220 IST--Government bond prices were in a thin band as traders stayed on the sidelines awaiting the 330-bln-rupee auction result. Moreover, traders maintained caution after the minutes of the April Monetary Policy Committee's meet, released on Thursday, suggested that panel members were willing to hike rates further, if needed, dealers said.

"All three papers should sail-through at the auction. The five-year paper may see good demand since there were no signs of any rate cuts from the Reserve Bank of India," a dealer at a state-owned bank said.

At the auction, traders expected the demand for the 2033 paper to be firm as a result of short-covering. Traders were unable to cover their bets in the last few trading sessions due to high concentration of the paper and limited avenues to cover short bets, dealers said.

Dealers also speculated that foreign banks were the major bidders for the 2052 paper as they stocked it up for their bond forward-rate-agreement requirements.

The government looked to raise 80 bln rupees through the issuance of the 7.06%, 2028 bond; 140 bln rupees of the 7.26%, 2033 bond; and 110 bln rupees of the 7.36%, 2052 bond at the auction from 1030 IST to 1130 IST.

Further, traders assessed the implications of the minutes of the April policy meet, dealers said. The minutes signalled unanimity among committee members in terms of their concern for climate-related risks taking centre stage, with the monsoon season drawing closer. "The minutes were slightly hawkish as they focussed on weather and geopolitical tensions necessitating more hikes, but overall it was on expected lines, so the market hasn't moved much since," a dealer at a private bank said. 

According to data on the Reserve Bank of India's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 141.25 bln rupees at 1215 IST compared with 154.45 bln rupees at 1230 IST on Thursday.

For the rest of the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.20-7.24%, and the yield on the 7.26%, 2033 bond is seen at 7.18-7.22%. (Kasthuri Akhil)

India Gilts: Steady; lack of firm cues, demand seen firm at auction

NEW DELHI – Government bonds were steady due to lack of significant domestic cues, dealers said. The overnight fall in US Treasury yields was offset by caution amongst traders after minutes of the Monetary Policy Committee's April meeting portrayed a willingness among members to increase rates further if needed, particularly with climate-related risks taking centre stage, heading into the monsoon months. 

Independent analysts have warned of an adverse impact of the El Nino phenomenon, a Pacific Ocean current that typically leads to a lower-than-average spell of rain over India. 

Meanwhile, the demand at the 330-bln-rupee auction was seen firm, dealers said. The government has offered to sell 80 bln rupees of the 7.06%, 2028 bond; 140 bln rupees of the 7.26%, 2033 bond; and 110 bln rupees of the 7.36%, 2052 bond at the weekly auction.

"The demand should be good for 7.26%,2033 bond," a dealer at a primary dealership said. "The 7.06%,2028 bond should also be fine as nationalised banks are keen on stocking up on the bond." 

Traders faced scarcity of the 7.26%,2033 bond on Thursday, which is scheduled for auction, as the paper is not traded much compared with the benchmark 7.26%,2032 bond, and has limited issuance, dealers said. Typically, traders place short bets ahead of auction to cover them at fresh gilt supply.

According to data on the Reserve Bank of India's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 55.80 bln rupees at 0945 IST compared with 42.20 bln rupees at 0940 IST on Thursday.

During the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.18-7.25%, and the yield on the 7.26%, 2033 bond is seen at 7.17-7.24%. (Anjali)

India Gilts: May open lower on likely short bets before weekly auction

NEW DELHI – Government bonds are seen opening lower today as traders might place short bets ahead of the 300-bln-rupee auction, dealers said. The government will sell 80 bln rupees of the 7.06%, 2028 bond; 140 bln rupees of the 7.26%, 2033 bond; and 110 bln rupees of the 7.36%, 2052 bond at the weekly auction.

Today, yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.18-7.25% as against 7.22% on Thursday. 

Traders faced scarcity of the 7.26%,2033 bond on Thursday, which is scheduled for auction, as the paper is not traded much compared to the benchmark 7.26%,2032 bond, and has limited issuance, dealers said. Typically, traders place short bets ahead of auction to cover them at fresh gilt supply.

Moreover, minutes of the Monetary Policy Committee's April meeting portrayed a willingness among members to increase rates further if needed, particularly with climate-related risks taking centre stage, heading into the monsoon months. Independent analysts have warned of an adverse impact of the El Nio phenomenon, a Pacific Ocean current that typically leads to a lower-than-average spell of rain over India. 

"A deficient monsoon would likely create inflationary pressures that would need to be counteracted with monetary policy measures," said external member Jayanth R. Varma. Declaring an end to the monetary policy tightening would be "premature", he said.

The rate-setting panel was unanimous in its decision to maintain status quo at its meeting in April. The panel will meet next on Jun 6-8. 

Additionally, traders might disregard overseas cues during the day, as has been the case for the last few trading sessions, due to no further change in the market's view about the future course of rate action in India and the US, dealers said.  (Anjali)

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Maheswaran Parameswaran

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