Informist, Friday, Dec 15, 2023

By Siddhi Chauhan and Aaryan Khanna

MUMBAI – The prices of government bonds ended sharply higher as demand at the 330-bln-rupee weekly gilt auction exceeded expectations and lifted cutoff prices, dealers said. 

The 10-year benchmark 7.18%, 2033 bond closed at 100.11 rupees, or 7.16% yield, as against 99.87 rupees, or 7.20%, on Thursday. This is the first time the bond has gone, or closed, above par since Sep 27.

At the auction, the government sold 70 bln rupees of the 7.37%, 2028 bond, 160 bln rupees of the 7.18%, 2033 bond, and 100 bln rupees of the 7.46%, 2073 bond. 

The cutoff prices were higher than expected for all three papers, with robust demand for the short-term gilts as liquidity conditions in the banking system eased due to the Reserve Bank of India's surprise variable rate repo auction, dealers said. Banks picked up the entire 1 trln rupees offered by the RBI at the seven-day tender today.

The RBI set the cutoff on the five-year paper at 101.20 rupees, against the 101.13-rupee median in an Informist poll of 17 traders. Dealers speculated the paper was picked up by private banks and mutual funds.

"What happened was that earlier, the market was expecting RBI to come up with OMO (open market operation sale auction). However, they announced VRR (variable rate repo), this instilled the belief that the central bank might not come up with OMO," a dealer at a primary dealership said.

Meanwhile, the benchmark 7.18%, 2033, which had a cutoff of 99.92 rupees, saw buying from a corporate entity, amongst others, which led to higher cutoff prices, dealers speculated. The cental bank set the cutoff on the benchmark paper at 99.92 rupees, which was the highest estimate in the Informist poll during auction bidding.

"The cutoff for the 10-year paper couldn't have landed on the higher end if corporate buying was not present," a dealer at a state-owned bank said. "The reason for this was that most banks refrained from buying this paper because of the liquidity crunch, only private banks bid, that too lightly." 

The 2073 paper also saw robust demand at the auction from pension funds and life insurers, which are the usual suspects at the auction. The government has introduced the 50-year paper for the first time in the Oct-Mar borrowing calendar, and the bond saw a wide array of bids from private and state-owned life insurers, dealers said.

Traders remained unsure whether the RBI was signalling it was ready to ease liquidity conditions on a sustained basis by conducting the variable rate repo tender, which was the first since Jul 19, dealers said. As of now, short-term bonds were in favour looking at the sharp easing in US interest rates expected in the next few months.

US Treasury yields continued their downward trend after Fed officials guided for 75 basis point rate cuts in 2024, with the market's expectations running far ahead of those suggested by central bankers, dealers said. The yield on the 10-year US Treasury note fell to 3.92% at close of Indian market hours today from 3.96% on Thursday.

Meanwhile, state-owned banks also bought gilts despite the sharp rise in prices as the 10-year benchmark yield fell below the psychologically-crucial 7.18% mark, which suggested that momentum may carry it towards 7.10% by the end of the month, dealers said.

The spike in trade volumes also suggested that market sentiment was extremely positive due to the global cues, dealers said. According to data on the RBI's Negotiated Dealing System-Order Matching platform, volumes have totalled 1.47 trln rupees in the last two days, which may be a record in the market, dealers said. 

"If you believe that the RBI will keep the liquidity comfortable after seeing the VRR (variable rate repo) announcement and the overnight rates will progressively fall towards repo rate, then the spread of 65-70 bps over the repo rate for 10-year paper looks pretty attractive assuming that the restrictive policy is behind us," V.R.C. Reddy, head of treasury, Karur Vysya Bank, said.

Foreign investors have also been piling into gilts and continued the momentum today, dealers said. Across the general category and fully accessible route securities, foreign investors bought 13.45 bln rupees of gilts, according to Clearing Corp data.

The rise in the rupee also eased fears of imported inflation, pushing up gilt prices, dealers said. The rupee ended at 83.00 a dollar, as against 83.33 on Thursday, on the back of strong foreign investments flows into domestic corporate houses.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the turnover was 708.05 bln rupees, compared with 763.05 bln rupees on Thursday. There were two trades worth 100 mln rupees today using the wholesale digital rupee pilot, the same as the previous day.

OUTLOOK

Government bonds are not traded on Saturday. On Monday, gilt prices may open steady due to a lack of significant domestic cues, and after the recent volatility.

Gilt prices may continue their upward momentum on an easing rate view in the US and India, though traders may also look to book profits if global cues turn adverse, dealers said.

A sharp move in US Treasury yields and crude oil prices may also lend cues at opening. 

The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.12-7.20%.

India Gilts: Rise more on higher than expected cut-offs at auction

MUMBAI--1433 IST--Prices of government bonds rose further after the Reserve Bank of India set a higher-than-expected cut-offs at the 330-bln-rupee gilt auction. The gains were led by the short-term bond as the announcement of the seven-day variable rate repo auction eased liquidity concerns, dealers said.

At the auction, the government sold 70 bln rupees of the 7.37%, 2028 bond, 160 bln rupees of the 7.18%, 2033 bond, and 100 bln rupees of the 7.46%, 2073 bond.

The short-term paper was picked by various investors, including mutual funds, dealers said. Moreover, banks also stepped up purchase of the paper for their asset liability management needs as liquidity eased after the 1 trln rupee variable rate repo auction.

"The market went so up ahead of the result as everybody felt a bit of FOMO (fear of missing out)," a dealer at a private bank said. "At the auction, the bid cover size was actually decent. Probably, big player given the bid size"

The cut-off on the five-year paper was set at 101.20 rupees, above the market expectation of 101.13 rupees. The RBI accepted 19 bids for the 5-year paper, as against 119 bids received, dealers said.

The 7.18%, 2033 paper saw firm bidding at the auction, dealers said. The market speculated that a corporate entity picked this paper, pulling the cut-off prices higher than earlier estimated, dealers said. The cental bank set the cut-off on the benchmark paper at 99.92 rupees, above the market estimates of 99.85 rupees. 

"Looking at the cut-offs, it seems that it is possible that corporate interest would have been there in the auction today in the 10 year (7.18%, 2033 bond) paper," a dealer at a state-owned bank said. "Earlier also, we heard the same, so it seems to be the case."

The RBI accepted 63 bids for the 10-year paper, as against 212 bids received, dealers said.

Meanwhile, the longer-term paper saw firm demand from insurers and pension funds. The cut-off on the 7.25%, 2073 paper was set at 100.81 rupees, against the expectation of 100.78 rupees. The RBI accepted 58 bids for the longer term paper, as against 187 bids received, dealers said.

Moreover, a fall in the yield on the benchmark 10-year US Treasury note also aided the price of gilt, dealers said. The yield on the benchmark 10-year US Treasury note hit the day's lowest level of 3.92%, as against 3.96% at the time of Indian market closing on Thursday. 

Yield on the benchmark 10-year US Treasury note fell to the lowest level since Jul 27, as traders assessed the guidance issued by the US Federal Reserve about the outlook for interest rates as its final policy meeting of the year concluded on Wednesday.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 542.90 bln rupees compared with 495.50 bln rupees at 1430 IST on Thursday. 

During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.18-7.24%. (Siddhi Chauhan)

India Gilts: Remain up; market eyes 330-bln-rupee auction result

MUMBAI--1208 IST--Prices of government bonds remained up after the Reserve Bank of India held a seven-day variable rate repo auction for a notified amount of 1 trln rupees today, dealers said. Traders now eye the result of the 330-bln-rupee auction.

At the auction, the government offered 70 bln rupees of the 7.37%, 2028 bond, 160 bln rupees of the 7.18%, 2033 bond, and 100 bln rupees of the 7.46%, 2073 bond.

"We have been hearing there would be a tail at the auction today," a dealer at a state-owned bank said. "Cut-offs would be a little lower, but if the corporate interest story is true, then we can't say what would happen later." 

Despite the speculated corporate interest, the cut-offs on the benchmark 2033 paper may come along the market level, supply pressures might weigh, dealers said. This is the largest quantum offered in a single bond at a gilt auction.

Meanwhile, not all traders were too keen to bet on the corporate interest in the auction, dealers said. "If everyone is talking about it, then it means they are not there."

According to an Informist poll, the cutoff on the 10-year benchmark paper was seen at 99.85 rupees. Dealers speculated that traders would look to buy the paper to cover their short bets placed.

Meanwhile, state-owned banks were not too eager to bid aggressively for the paper around 7.20% yield levels, as they would wait for yields to rise to 7.21-7.22%, dealers said. 

However, other investors, including foreign banks and private banks may bid at the current market levels, dealers said.

Dealers said that investors would step up purchase of the 10-year paper as they think only one auction for the paper is left before a new 10-year paper is issued. The market expects a new 10-year paper to be issued when the outstanding of the current paper reaches near 1.50 trln rupees, as it is the most that the government generally borrows through a single bond. The benchmark 7.18%, 2033 paper has an outstanding of 1.21 trln rupees. 

Among the bonds up for auction, the cut-off on the five-year paper is seen at 101.13 rupees, which is largely along the market levels, dealers said.

Dealers speculated that mutual funds bid at the auction for the 2028 paper. Other investors, like state-owned banks, private banks were speculated to have bid for the paper, adding to the demand.

Meanwhile, the 2073 paper is largely expected to be picked up by insurers and pension funds, as they are the usual participants in that segment of the auction, dealers said.

The cutoff on the paper was expected to be around 100.78 rupees or 7.40% yield. Dealers speculated that a large state-owned insurer and a large pension fund were buying the paper. 

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 207.60 bln rupees compared with 368.20 bln rupees at 1235 IST on Thursday. 

During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.18-7.24%. (M.C. Adhiinthran)

India Gilts: Up on VRR announcement; mkt eyes 330-bln-rupee auction

MUMBAI--0953 IST--Prices of government bonds rose after the Reserve Bank of India said it will hold a seven-day variable rate repo auction for a notified amount of 1 trln rupees today, dealers said.

Short-term papers rose more as the market sees banking system liquidity easing slightly following the seven-day variable rate repo auction for a notified amount of 1 trln rupees today, dealers said.

"The market is pleasantly surprised after the VRR announcement by the RBI," a dealer at a primary dealership said. "It is positive to see that the RBI is not keen on keeping liquidity in deficit."

Meanwhile, the volume remained concentrated in the 10-year paper, as traders avoided placing large bets in other papers ahead of the auction, dealers said. The market would wait for the auction to gauge investors' appetite before buying heavily. Most government bonds rose in thin trade.

Amongst on-the-run gilts, gains were limited in the benchmark 2033 paper as traders placed fresh short bets, dealers said. Typically, traders cover their short bets at the primary auction.

The government will sell 70 bln rupees of the 7.37%, 2028 bond, 160 bln rupees of the 7.18%, 2033 bond, and 100 bln rupees of the 7.46%, 2073 bond.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 25.30 bln rupees compared with 111.15 bln rupees at 0930 IST on Thursday. 

During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.18-7.24%. (Nishat Anjum)

India Gilts: Seen steady on caution before 330-bln-rupee bond auction

MUMBAI – Prices of government bonds are seen opening steady, as traders may avoid placing aggressive bets on caution ahead of the 330-bln-rupee gilt auction, scheduled later in the day, dealers said.

The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.16-7.24% today, as against 7.20% on Thursday.

Some traders may also place short bets on the papers lined up for the auction, which may weigh on gilt prices in early trade, dealers said. Traders typically cover their short bets at the auction.

The government will sell 70 bln rupees of the 7.37%, 2028 bond, 160 bln rupees of the 7.18%, 2033 bond, and 100 bln rupees of the 7.46%, 2073 bond. The market will take cues from investors' demand at the auction, which has remained poor in the last few primary auctions, dealers said. 

The benchmark 10-year paper may also see some supply pressure, as it is the largest quantum offered in a single bond at a gilt auction, dealers said.

With no significant domestic cues, traders may avoid placing large bets, keeping the trade volume low in early trade, dealers said. Moreover, after heavy trade on Thursday, the market may remain lacklustre today as traders may shy away from two consecutive days of volatile trade.

On the global front, a rise in oil prices may weigh on government bonds, dealers said. However, the losses may remain limited as crude prices still remain below the psychologically crucial level of $85 per barrel.

Brent crude future for February delivery was at $76.94 a bbl, as against $75.51 at the time of the Indian market close on Thursday. An uptick in crude oil prices increases the fears of imported inflation.

Oil futures rose on Thursday, extending the previous session's gains, boosted by a weaker dollar. The International Energy Agency also increased its oil demand forecast for next year, aiding oil prices. The agency said global oil demand will rise by 1.1 mln barrels per day in 2024, up slightly from its previous forecast of 930,000 bpd.  (Nishat Anjum)

End

US$1 = 83.00 rupees

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

Edited by Aditya Sakorkar

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