Informist, Monday, May 22, 2023

By Kasthuri Akhil

MUMBAI – Prices of government bonds ended higher as the positive market sentiment stayed intact after the Reserve Bank of India on Friday announced the withdrawal of 2,000-rupee banknotes from circulation. Traders stepped up gilt purchases on the expectation of banking system liquidity to improve gradually, causing a further rise in gilt prices, dealers said. 

The 10-year benchmark 7.26%, 2033 bond ended at 101.89 rupees or 6.9864% yield, against 101.72 rupees, or 7.01% yield on Friday. 

"Everything about the 2,000-rupee note withdrawal has been factored in. You can see that yields on papers till five-year maturity have fallen by about 10 basis points," a dealer at a private bank said. "Bull steepening has happened, but if it'll steepen further is something we still have to wait and watch."

Liquidity conditions tend to have a greater impact on short-term money market instruments, including short-term gilts. The five-year 7.38%, 2027 bond surged more than the 10-year benchmark 2033 bond, and ended 26 paise higher at 101.76 rupees as compared to Friday's close.

Traders stocked up on shorter-term bonds due to easing liquidity conditions, dealers said. By the end of September, the market broadly expects systemic liquidity to rise by 1-1.6 trln rupees by means of a boost in the deposit base. 

As a consequence, traders expect yields on shorter-term papers to fall at a faster pace than those on longer-term papers, causing a bull steepening in the yield curve, dealers said.

During the day, the yield on the 10-year benchmark 2033 bond remained below the psychologically crucial 7% mark as traders considered it to be a good level to step up purchases. However, some traders sold their bond holdings to seek profits after the sharp rise in prices in early trade, which kept yield on the paper within a range of 3 bps, dealers said.

"The yields were range bound after rise in the morning, because US yields rose slightly by the closing time," a dealer at a primary dealership said. "Majority see yield on the 10-year (benchmark 2033 bond) to go till 6.85%, but personally I think there will be a pull-back from 6.90%."

The yield on the benchmark 10-year US Treasury note rose to 3.67% towards the end of Indian market hours from 3.64% during the day. However, the impact of rise in US yields was overridden by the strong positive sentiment in the domestic market, dealers said. 

Traders expect the positives for the gilt market to continue, dealers said. They expect easing state of liquidity to bolster credit growth by means of softening overnight rates, which will give room to the central bank to delay rate cuts by few months, dealers said.  

Now, the market expects the Monetary Policy Committee to cut rates by the end of the current financial year as against last week's expectations of rate cuts as early as October. 

According to data on the RBI's Negotiated Dealing System--Order Matching platform, the turnover was 496.35 bln rupees compared with 619.55 bln rupees on Friday. No trade was settled with the digital rupee today. 

OUTLOOK

On Tuesday, bonds are seen opening higher as positive sentiment driven by easing liquidity conditions may linger in the domestic market, dealers said.

Traders may also track overnight movement in US Treasury yields and crude oil prices.

The yield on the 10-year benchmark 7.26%, 2033 bond is seen at 6.95-7.01%.

India Gilts: Remain up; traders see further rise on easing liquidity

MUMBAI--1540 IST--Prices of government bonds remained higher as traders stepped up purchases due to expectations that liquidity in the banking system may rise after the Reserve Bank of India announced the withdrawal of 2,000-rupee banknotes on Friday, dealers said.

Traders stepped up purchases of the 10-year benchmark 7.26%, 2033 bond at 7% yield levels, which is considered lucrative. This, dealers said, kept the yield on the 2033 paper in check.

Prices of shorter-term papers were up more as traders stocked up on bonds maturing in five years or less due to easing liquidity conditions, dealers said. By the end of September, the market broadly expects system liquidity to improve by 1-1.6 trln rupees by means of a boost in the deposit base. 

As a result, traders expect yields on shorter-term papers to fall at a faster pace than those on longer-term papers, causing a bull steepening in the yield curve, dealers said.

"Going forward, steepness may increase because banks will look to deploy their funds in the shorter-end of the curve, given that it has already rallied a lot," a dealer at a private bank said. "They may stay away from longer-term papers because there is no clear visibility on rate cuts as yet."

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the marketwide turnover was 429.10 bln rupees at 1535 IST as compared with 305.25 bln rupees at 1415 IST on Friday.

For the rest of the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 6.96-7.00%. (Kasthuri Akhil)

India Gilts: Off-highs as traders sell bond holdings at profit

MUMBAI--1215 IST--Prices of government bonds were off the day's highs as traders sold their bond holdings at a profit, dealers said. 

"People are expecting banking liquidity to increase to about 1.5-2 trln rupees. But, after the initial rise in the morning, we can see gilts getting sold off," a dealer at a private bank said. "So we don't think it will have much impact on gilt prices."

Traders expected the yield on the 10-year benchmark 2033 paper to stay below the psychologically crucial 7% mark, as it is considered as a good level to step up purchases, dealers said. 

On Friday, the RBI had said it would withdraw the highest denomination banknotes of 2,000 rupees from circulation by Sep 30. By the end of September, the market expects banking system liquidity to increase gradually by 500 bln to 1.5 trln rupees.

Meanwhile, the shorter-term papers were up more as traders stepped up purchases of the benchmark five-year 7.38%, 2027 bond as they see easing liquidity conditions by way of increased deposits to sustain only for a short period of time. 

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 303.70 bln rupees at 1210 IST as compared with 164.60 bln rupees at 1200 IST on Friday. 

For the rest of the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 6.96-7.00%. (Kasthuri Akhil)

India Gilts: Rise as traders say banknote withdrawal to aid liquidity

MUMBAI--0930 IST--Prices of government bonds sharpy rose as traders expect banking system liquidity to rise after the Reserve Bank of India on Friday announced the withdrawal of 2,000-rupee banknotes.

"Withdrawal of banknotes has given some much-needed positive news the market was looking for. There are different numbers in the market as of now (for the estimated rise in liquidity)," a dealer at a private bank said. "It is yet to be seen where the yields stabilise given global factors such as rise in US Treasury yields."

The market disregarded a rise in US Treasury yields. The yield on the benchmark 10-year US Treasury note rose by 5 basis points to 3.70% on Friday.

The RBI said it would withdraw the highest denomination banknotes of 2,000 rupees from circulation by Sep 30. By the end of September, the market expects banking system liquidity to increase gradually to 500 bln to 1.5 trln rupees.

Consequently, bank deposits may increase by 1.5-2.5 trln rupees by Sep 30, dealers said. Liquidity conditions impact short-term money market instruments, including short-term gilts. The five-year 7.38%, 2027 bond surged more compared to the benchmark 10-year 7.26%, 2033 bond.

Traders also stepped up purchases at lucrative yield levels, as they expect government bond prices to rise in the near future, dealers said.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the marketwide turnover was 112.80 bln rupees at 0932 IST compared with 37.60 bln rupees at 0915 IST on Friday.

During the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 6.96-7.00%. (Nishat Anjum)

India Gilts: Seen up as traders might buy at lucrative yield levels

NEW DELHI – Government bonds are seen opening higher today as traders might step up purchases at lucrative yield levels, expecting prices to rise in the near future, dealers said. However, a rise in US Treasury yields might limit the gains, dealers said.

Today, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 6.90-7.05%, against 7.01% on Friday.

US Treasury yields closed higher on Friday due to risk-off sentiment following news of a deadlock between lawmakers on negotiations over the US government's debt ceiling. 

This was despite seemingly toned-down comments by US Federal Reserve Chair Jerome Powell. "We haven't made any decisions about the extent to which additional policy firming will be appropriate," Powell said, as per a report by Reuters.

The talks between top US bureaucrats about raising the federal government's $31.4-trln debt ceiling were paused on Friday. This was followed by a phone call between Biden and Congressional leaders over the weekend, in which they decided to resume their talks in Washington today.

If the US fails to raise its borrowing limit before the first week of June, the world's largest economy is likely to run out of money and default on its payment obligation. This will result in a cascading effect across financial markets worldwide.

The yield on the benchmark 10-year US Treasury note rose by 5 basis points to 3.70% on Friday. A rise in US Treasury yields narrows the interest rate differential between the safe-haven asset and emerging market debt, making the latter less appealing to foreign investors.

Back home, traders might refrain from placing large bets on short-term bonds due to uncertainty around the rate view, dealers said. A section of the market expects the domestic rate-setting panel to start rate cuts as early as October. However, another section thinks it is too early to expect the Reserve Bank of India's Monetary Policy Committee to cut rates in October, 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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