Informist, Tuesday, Aug 30, 2022

By Aaryan Khanna

NEW DELHI – Government bond prices surged today following a sharp fall in the five-year overnight indexed swap rate due to heavy inflows from a corporate house, which also stocked up on gilts, dealers said.

The 10-year benchmark 6.54%, 2032 bond settled at 95.62 rupees, or 7.19% yield, against 95.20 rupees, or 7.25% yield, on Monday.

The corporate house likely received fixed rates to mitigate its interest rate risk on a bond it issued today maturing in 10 years. In gilts, the company bought the 6.54%, 2032 bond, preferring the most-traded paper to ensure minimal market distortion for its sizeable purchases, which pushed prices and volumes higher, dealers said.

Traders also unwound their paid fixed rate bets in the five-year swap as its rise on Monday was seen overdone, dealers said. The five-year OIS today fell by 10 basis points to 6.44%, after rising 11 bps on Monday.

"There was some speculation of strong corporate receiving (in swaps) which turned around the market sentiment in the morning," said a dealer with a foreign bank. "After that, fundamental positioning in the swap rates changed and led to heavy buying on the fixed income side as well." 

Gilt prices were also buoyed towards the end of trade by a fall in crude oil prices and US Treasury yields, dealers said.

Brent crude for October delivery slumped nearly 2.5% from Monday to $102.49 a barrel at the end of Indian market hours today, as fears of a slowdown in global demand due to soaring inflation offset concerns about supply cuts from oil producers.

The yield on the 10-year US Treasury note also fell below the key 3.10% mark today, which stoked demand for domestic gilts, dealers said.

Traders avoided short bets despite the surge in bond prices on the view that a sharp fall from current levels is unlikely in the near term because of a benign domestic rate view and firm investor appetite for gilts, dealers said.

Government bonds were in favour in the portfolios of overseas investors as they anticipated India's debt to be added to global bond indexes, which was likely to spur inflows into fixed income assets. Investors stepped up purchases as they expected an announcement on inclusion as early as September, dealers said.

Last week, Financial Times reported that JPMorgan had initiated discussions with major investors on their views to list a majority of India's $1 trln government debt on the Global Bond Index-Emerging Markets index.

"Even those who have an opposite view on bond index inclusion can't afford to burn their fingers by placing a large bet against the market momentum, which will persist probably into the middle of September," a dealer at a state-owned bank said.

"We have broken 7.20% yield today (on the 6.54%, 2032 bond), so the market seems ready for the next technical level at around 7.12%."

According to data on the Reserve Bank of India's Negotiated Dealing System – Order Matching platform, the market-wide turnover was 535.30 bln rupees, compared with 307.65 bln rupees on Monday.

OUTLOOK

Domestic financial markets are shut on Wednesday for Ganesh Chaturthi.

On Thursday, gilts are seen taking cues from a slew of economic data set to be released on Wednesday, including domestic GDP growth and government finances for July.

India's GDP is likely to have grown 15.0% in Apr-Jun, mainly on account of the statistical effect of a low base coupled with recovery in the services sector, according to an Informist poll of 24 economists.

Traders will also consider data on government finances in July, as well as goods and services tax collections in August, which may be announced Thursday.

The data is likely to increase volatility amid the curtailed trading week, particularly ahead of the 330-bln-rupee weekly gilt auction on Friday.

The government has offered to sell 40 bln rupees of the 6.69%, 2024 bond, 70 bln rupees of the 7.10%, 2029 bond, 130 bln rupees of the 7.26%, 2032 bond, and 90 bln rupees of the 6.95%, 2061 bond.

Investor appetite for bonds remains firm on hopes of India's sovereign debt being included in global bond indices, with a potential announcement as early as September, dealers said.

Any movement in US Treasury yields and crude oil prices may also lend cues at open.

The yield on the 10-year 6.54%, 2032 bond is seen at 7.15-7.24%.

India Gilts: Up more as crude, US yields ease, 5-year OIS falls further

NEW DELHI--1500 IST--Government bond prices rose further as crude oil prices and US Treasury yields slumped during the day, after the five-year overnight index swap rate plummeted earlier on the back of corporate flows, dealers said.

The five-year swap rate fell more to 6.43% from 6.46% earlier, as global cues turned less adverse, dealers said.

Brent crude for October delivery slumped nearly 2% from Monday's settlement to $103.20 a bbl as fears of a slowdown in global demand due to soaring inflation offset concerns about supply cuts from oil producers.

Meanwhile, the yield on the 10-year US Treasury note fell under the key 3.10% mark during Indian market hours today, which stoked demand for domestic gilts, dealers said.

Indian government bonds were in favour with overseas investors as they anticipated domestic debt to be included in global bond indices. Traders eyed an announcement of inclusion in the JPMorgan Government Bond Index-Emerging Markets as early as September, following reports of progress on this front last week, dealers said.

Traders avoided trimming their holdings or taking short bets despite the surge in prices due to firm investor demand, dealers said.

"We can't short against the trend and so the market is gradually moving upward, but the only buyers at these levels are likely mutual funds and some inflows," a dealer at a primary dealership said. "There is a lot of distortion due to the speculation about bond index inclusion."

Earlier, a large corporate house had likely received fixed interest rates in the five-year swap rate while also stocking up on gilts to mitigate its interest rate risk on a bond issuance. The move propelled the market during the day despite an overnight rise in crude oil prices, dealers said.

During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.17-7.23%. (Aaryan Khanna)

India Gilts: Surge noting fall in 5-year OIS on likely corporate flows

NEW DELHI--1120 IST--Prices of government bonds rose sharply, noting a fall in the five-year overnight indexed swap rate, likely because of corporate flows, dealers said.

The five-year OIS fell to 6.45% today from Friday's close of 6.54% as a large corporate house received fixed rates to mitigate their interest rate risk for a recently issued 10-year bond, dealers said.

Moreover, some corporate houses received fixed rates on view the rise in the five-year swap on Monday was overdone, dealers said.

"A large corporate has issued a bond and are receiving in the OIS market to hedge their risk," a dealer at a private bank said. "This is the third or fourth time when such a market movement is taking place because of this corporate this year."

Moreover, investors stocked up on the 10-year benchmark 6.54%, 2032 bond at 7.25% yield, a level considered lucrative, dealers said.

Traders avoided placing short bets even as crude prices surged on Monday because investors continued to stock up on gilts with the underlying market sentiment staying positive, dealers said.

Market sentiment is upbeat with most rate hikes by the Reserve Bank of India seen already done. Further, the news of India's potential inclusion in the JPMorgan bond index also prevented traders from placing short bets, dealers said.

During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.17-7.23%. (Shubham Rana)

India Gilts: Tad up as investors stock up at lucrative levels

NEW DELHI--0935 IST--Prices of government bonds rose slightly as investors stepped up their gilt purchases at levels considered lucrative even as crude prices rose overnight, dealers said.

"The market has completely ignored the rise in crude, which is surprising," a dealer at a state-owned bank said. "Earlier, investors were buying the 10-year 6.54%, 2032 gilt close to the 7.30% yield, but now, 7.25% is also a good level to buy."

Trade volumes were muted as traders avoided large bets ahead of a slew of key economic data, including GDP figures, on Wednesday, dealers said.

India's GDP is likely to have grown 15.0% during Apr-Jun, mainly on account of the statistical effect of a low base coupled with recovery in the services sector, according to an Informist poll of 24 economists.

During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.21-7.26%. (Shubham Rana)

India Gilts: Seen down as Brent crude prices surge on Monday

NEW DELHI – Prices of government bonds are expected to open lower today due to a surge in crude oil prices on Monday, dealers said.

Crude oil prices ended over 4% higher on Monday on potential output cuts by the Organization of the Petroleum Exporting Countries.

Possible production disruption in Libya also added to fears of a global energy crisis. 

The Brent crude contract for November delivery was at $102.93 per barrel on Monday as against $99.01 per bbl on Friday. Typically, a rise in crude oil prices increases the risk of imported inflation in India and puts more pressure on the Reserve Bank of India to withdraw monetary policy accommodation aggressively.

A rise in crude oil prices also adds to fears of imported inflation in India.

Today, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.23-7.30% as against 7.25% on Monday. 

On the domestic front, traders may avoid aggressive bets in the run-up to key economic data, scheduled for Wednesday.

India's GDP is likely to have grown 15.0% during Apr-Jun, mainly on account of the statistical effect of a low base coupled with recovery in the services sector, according to an Informist poll of 24 economists.

Traders may also avoid large bets in a curtailed week. Money markets will be shut on Wednesday on account of Ganesh Chaturthi. (Shubham Rana)

End

US$1 = 79.45 rupees

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

Edited by Ashish Shirke

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2022. All rights reserved.