Informist, Friday, Nov 3, 2023

By Aaryan Khanna

NEW DELHI – Government bond prices ended higher today tracking a fall in US Treasury yields, with the 300-bln-rupee auction results also in line with expectations. Gains were limited as traders booked profit and avoided holding onto gilts ahead of the weekend and key US data, due after market hours, dealers said.

The 10-year benchmark 7.18%, 2033 bond closed at 99.06 rupees, or 7.31% yield, against 98.99 rupees, or 7.32% yield, on Thursday.

The yield on the benchmark 10-year US Treasury note fell to a three-week low on Thursday, as market participants were of the view that the US Federal Reserve was done hiking rates and as data showed jobless claims in the US rose more than expected. Expectations of a weak payrolls report for October later today also contributed to the drop in yields.

Data released on Thursday showed new claims for unemployment benefits in the US increased moderately last week. Initial claims for state unemployment benefits rose 5,000 to a seasonally adjusted 217,000 in the week ended Oct 28. A poll of economists by Reuters had forecast 210,000 claims.

The yield on the benchmark 10-year US Treasury note fell to 4.64% at the time of Indian market close today from 4.71% on Thursday. A fall in US Treasury yields widens the interest rate differential between the safe-haven asset and emerging market debt, making the latter more appealing to foreign investors.

The full impact of the fall in US yields was not considered by traders on caution ahead of the non-farm payrolls data for October, which is seen as a key indicator to cement the recent change in view that the US will not see another rate hike this year, and the softer rate outlook in general, dealers said.

"The market can't trade with any confidence right now," a dealer at a state-owned bank said. "For an auction day, and when we have the benefit of a large correction in US yields, there's just not enough strength to move it up further."

One of the widespread fears in the market, that the Reserve Bank of India would announce open market sales of bonds through an auction, slowly receded as the central bank refrained from such a notice this week, dealers said. RBI Governor Shaktikanta Das had last month said that the operations may be used to drain liquidity.

Traders had widely expected the first auction, or a notice for it, to be this week as the government's month-end spending and redemption of the 4.48%, 2023 bond added about 1.75 trln rupees to the banking system. That influx helped with demand at the weekly gilt auction today, even as the banking system remained in a liquidity deficit at the start of trade.

A section of the market was still uncertain on the timing of OMO sales, while others were more hopeful that the central bank would now avoid sales through bond auctions and instead continue selling gilts in the secondary market dealers said.

"The fear has not gone away, but I don't think the market is bound by it as much as it was earlier," a dealer at a primary dealership said. "We are still seeing some bullishness until 7.25% is hit on the 10-year (gilt yield)."

The government sold 70 bln rupees of the 7.37%, 2028 bond, 130 bln rupees of the 7.18%, 2033 bond, and 100 bln rupees of a new 2073 bond. The RBI set the coupon on India's maiden 50-year gilt issuance at 7.46%.

The benchmark 10-year paper saw aggressive short covering from traders who had built up short bets in the 7.18%, 2033 gilt during the week. The paper was largely picked up by private banks and primary dealerships and did not stay long in their portfolios, dealers said. Traders booked profit on the gilt also immediately after the result, pushing prices off highs.

Demand from state-owned banks was more muted as they did not find the levels attractive after buying the 10-year gilt over the past two weeks. The bond's price in the secondary market dipped, before US yields fell more in the second half of the day and helped the recovery by the close, dealers said.

Insurance companies and pension funds picked up the 50-year paper at the auction at a lower return than that on the 40-year gilt, showing strong demand for the bond, dealers said. A large state-owned insurer was speculated to have heavily bid for the bond to match its liabilities, as only 300 bln rupees of the gilt are up for sale in Oct-Mar.

The 2028 bond saw firm demand from private banks for their asset-liability management after the maturity, which also freed up allocations for short-term bonds, dealers said.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the turnover was 375.85 bln rupees, compared with 346.65 bln rupees on Thursday. There were two trades using the wholesale digital rupee pilot today worth 200 mln rupees, against five trades worth 350 mln rupees the previous day.

OUTLOOK

Gilts are not traded on Saturdays. On Monday, gilts may open higher after US non-farm payrolls data for October made the case for a slowdown in the US and consequently no further policy tightening by the US central bank.

The US economy added 150,000 jobs in October, compared with a 170,000 estimate in a poll by Dow Jones. Job additions for previous months were also revised lower. The unemployment rate inched up to 3.9% from 3.8%.

Traders also await more clarity on the RBI's plan for OMO sales through auctions, which was widely expected this week. 

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

The yield on the 10-year benchmark 7.18%, 2033 bond is seen in a range of 7.25-7.34%.

India Gilts: Off highs despite auction result in line with view

MUMBAI--1443 IST--Prices of government bonds were off the day's highs, even as the results of the 300-bln-rupee weekly gilt auction came along market expectations, as traders took profit ahead of the weekend and key US data release, dealers said.

The government sold 70 bln rupees of the 7.37%, 2028 bond, 130 bln rupees of the 7.18%, 2033 bond, and 100 bln rupees of a new 2073 bond. The Reserve Bank of India set the coupon on India's maiden 50-year gilt issuance at 7.46%.

The benchmark 10-year paper saw aggressive short covering from traders who had built up short bets in the 7.18%, 2033 gilt during the week. The paper was largely picked up by private banks and primary dealerships and did not stay long in their portfolios, dealers said.

"People are already offloading their auction bonds," a dealer at a state-owned bank said. "That's why the paper is currently trading below auction cutoff."

The 2028 bond saw good demand from private banks for their asset-liability management after the maturity of the 4.48%, 2023 bond freed up some space on their books, dealers said.

In both the short term and 10-year benchmark paper, state-owned banks were not active in the auction as the levels were not lucrative for them. The fear of the RBI announcing bond sales through auction in the coming weeks also prevented aggressive bidding and kept state-owned banks at bay, dealers said.

Insurance companies and pension funds picked up the 50-year paper at the auction at a lower return than that on the 40-year gilt, showing the strong demand for the bond, dealers said. A large state-owned insurer was speculated to have heavily bid for the bond to match its liabilities, as only 300 bln rupees of the gilt are up for sale in Oct-Mar.

Meanwhile, the yield on the benchmark 10-year US Treasury note fell to 4.67% from 4.71% at the time of Indian market close on Thursday. The yield on the benchmark 10-year US Treasury note fell to a three-week low, as market participants were of the view that the US Federal Reserve was done hiking rates and as data showed jobless claims in the US rose more than expected.

However, traders were cautious of holding onto their bets ahead of the US non-farm payroll data, scheduled for release after market hours, dealers said. The US economy is expected to have added 170,000 jobs in October against 336,000 in September, according to a poll by Dow Jones.

"NFP (non-farm payroll) data has always thrown surprises at us", a dealer at a private bank said. "If their data comes... above expectations, then US yield may go to 4.75% levels".

According to data on the Reserve Bank of India's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 270.90 bln rupees at 1443 IST, compared with 213.15 bln rupees at 1430 IST on Thursday.

For the rest of the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.31-7.38%.  (M.C. Adhiinthran)

India Gilts: Remain up; mkt eyes 300-bln-rupee bond auction result

MUMBAI--1246 IST--Prices of government bonds remained up, noting a fall in the yield on the benchmark 10-year US Treasury note, dealers said. Demand at the 300-bln-rupee bond auction was seen robust for two of the three papers, with mixed views on whether the 7.18%, 2033 bond would entice traders at current levels. 

The yield on the 10-year US Treasury was at 4.66%, down 5 basis points from Indian market close on Thursday.

"I think since US yields have fallen, sentiment in the market is a little positive," a dealer at a private bank said. "No OMO (open market operation) sale announcement from RBI is also a factor."

At the auction today, the government offered 70 bln rupees of the 7.37%, 2028 bond, 130 bln rupees of the 7.18%, 2037 bond, and 100 bln rupees of the new 2073 bond.

Insurance companies, including the country's top state-owned and private life insurers, are likely to have mopped up the entire supply of the new 2073 bond at its maiden issuance to match their liabilities. Other sections of the market, including pension funds, stayed away from the bidding as the bond did not suit their investing requirements, dealers said.

Traders said that at the auction, state-owned banks bid aggressively for the five-year paper for asset liability management requirements, and also because their short-term investing allocations expanded, dealers said. Demand for the short-term paper was firm this time due to a cash influx of about 550 bln rupees from the maturity of the 4.48%, 2023 bond on Thursday, dealers said. In the previous auction, short-term papers had remained out of favour due to tight liquidity.

Traders are likely to cover their short bets in the 10-year, 2033 bond at the auction today. Dealers speculated private dealerships and state-owned banks would cover their short bets at the auction.

"The demand for 10-year paper is seen because the short (sale) amount is on the higher side for the last two days. And if people consider OMO will not be there, they will go for buying," a dealer at a private bank said. 

On the other hand, the amount of short bets was not significantly higher than usual for an auction day and investors are likely to stay away from the 10-year gilt as its price has risen sharply over the last two days, which could see cut-off prices around 4-7 paise lower than market levels, dealers said. Since Wednesday, the 7.18%, 2033 bond has jumped by 33 paise.
 

According to data on the Reserve Bank of India's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 147.05 bln rupees, compared with 163.80 bln rupees at 1230 IST on Thursday.

During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.32-7.38%. (Siddhi Chauhan)

India Gilts: Tad up as US yields fall; mkt cautious ahead of auction

NEW DELHI--1000 IST--Government bond prices were a tad higher today as traders avoided aggressive bets ahead of the 300-bln-rupee weekly gilt auction, despite buying interest stemming from a fall in US Treasury yields overnight, dealers said.

The yield on the benchmark 10-year US Treasury note settled at 4.66% from 4.71% at the time of Indian market close on Thursday. They did not trade in Asian trade today as Japanese financial markets are shut on account of Culture Day.

The full impact of the fall in US yields was not considered by traders on caution ahead of the non-farm payrolls data for October, which is seen as a key indicator to cement the recent change in view that the US will not see another rate hike this year, and the softer rate outlook in general, dealers said.

"There's the auction, there's non-farm payrolls later," a dealer at a primary dealership said. "When we come to these levels, market tends to play safe."

The government will sell 70 bln rupees of the 7.37%, 2028 bond, 130 bln rupees of the 7.18%, 

2033 bond, and 100 bln rupees of a new 2073 bond. The maiden issuance of the 50-year sovereign paper will be mopped up by large state-owned and private life insurers, dealers said.

Demand for the other papers is also seen robust, with state-owned banks likely to bid aggressively for the 2028 gilt after the cash influx of about 550 bln rupees from the maturity of the 4.48%, 2023 bond on Thursday, dealers said. Banks had deployed some funds from the redemption of the 4.48%, 2023 bond beforehand, but a significant chunk was still remaining, keeping short-term gilts in favour this week.

Meanwhile, traders are likely to cover their short bets in the 2033 gilt taken earlier this week, with demand helped by the fall in US yields. Instead of the secondary market, traders preferred waiting for the debt sale, capping the rise in gilt prices and volume, dealers said.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 44.05 bln rupees, compared with 48.65 bln rupees at 0930 IST on Thursday.

During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.29-7.35%.  (Aaryan Khanna)

India Gilts: Seen up as US ylds fall; mkt eyes 300-bln-rupee auction

MUMBAI – Prices of government bonds are expected to open higher because of a fall in US Treasury yields, dealers said. However, the gains are expected to be limited as traders may avoid placing large bets ahead of the weekly auction at 1030-1130 IST.

The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.29-7.35% today, as against 7.32% on Thursday.

The government said it would sell 100 bln rupees of a new 2073 bond, 130 bln rupees of the 7.18%, 2033 bond, and 70 bln rupees of the 7.37%, 2028 bond. Some traders may place short bets on the 10-year paper up for auction, which may help the 14-year 7.18%, 2037 bond outperform the paper, dealers said. Typically, traders cover their short bets at the fresh issuance.

The auction will be the government's maiden issuance in the 50-year tenure, and the demand is such that yields may be flat or lower against the 40-year gilt, dealers said. Long-term investors such as insurance companies and provident funds have expressed their interest in the paper to match their liabilities.

In addition, the demand for the short-term paper, 7.37% 2028, may pick up at the auction as the 4.48%, 2023 bond was redeemed on Thursday, which aided liquidity in the banking system, leaving banks with more cash to invest, dealers said.

"With the redemption, banks have more cash to deploy, so they may buy short-term paper as well. Also, if we look at the past trend, banks have sold short-term papers. So this time, they may go for buying," a dealer at a private bank said.

Further, dealers expect that the yield on the 10-year benchmark, 7.18%, 2033 may be around 7.30%, but a fall below this level is unlikely.

Meanwhile, the yield on the benchmark 10-year US Treasury note fell to 4.66% from 4.71% at the time of Indian market close on Thursday. A fall in US Treasury yields widens the interest rate differential between the safe-haven asset and emerging market debt, making the latter more appealing to foreign investors.

The yield on the benchmark 10-year US Treasury note fell to a three-week low on Thursday, as market participants were of the view that the US Federal Reserve was done hiking rates and as data showed jobless claims in the US rose more than expected. Expectations of a weak payrolls report for October later today also contributed to the drop in yields.

Data released on Thursday showed new claims for unemployment benefits in the US increased moderately last week. Initial claims for state unemployment benefits rose 5,000 to a seasonally adjusted 217,000 in the week ended Oct 28. A poll of economists by Reuters had forecast 210,000 claims. (Anupreksha Jain)

End

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

Edited by Ashish Shirke

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