Informist, Friday, Sep 22, 2023

By Nishat Anjum

MUMBAI – Government bond prices erased gains and ended lower after lower-than-expected cut-offs at the 330-bln-rupee gilt auction, dealers said. Earlier, gilts were up on the announcement of their inclusion in JPMorgan's Global Bond Index – Emerging Markets suite.

The 10-year benchmark 7.26%, 2033 bond closed at 100.47 rupees, or 7.19% yield, against 100.63 rupees, or 7.17% yield, on Thursday. The 7.18%, 2033 bond closed at 100.15 rupees, or 7.16% yield, against 100.24 rupees, or 7.14%, the previous trading day.

"The best levels we saw were in the morning. After that, it has been a spree of profit booking," a dealer at a private bank said. "7.05% has been the dream that did not come through. If the auction was better, then we were expecting one more round of rallying."

At the auction today, the government sold 80 bln rupees of the 7.06%, 2028 bond, 140 bln rupees of the 7.18%, 2033 bond, and 110 bln rupees of the 7.30%, 2053 bond.

The Reserve Bank of India set the cut-off for the 7.18%, 2033 paper at 100.31 rupees, against expectations of 100.40 rupees. The cut-off for the 7.06, 2028 bond was set at 99.54 rupees, much lower than the estimate of 99.68 rupees in an Informist poll. Meanwhile, the central bank set the cut-off price for the 7.30%, 2053 bond at 99.55 rupees, against expectations of 99.74 rupees.

The market widely expected traders to cover short bets at the auction, since they did not aggressively step up purchases in the secondary market, dealers said. However, traders did not bid aggressively, given the fear of an uptick in US Treasury yields and crude oil prices.

While demand from banks, particularly state-owned ones, was expected to be firm at the auction, they refrained from bidding aggressively, dealers said.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the turnover today was 731.45 bln rupees, compared with 653.90 bln rupees on Thursday. There were no trades today with the digital rupee pilot for the fourth straight trading session.

INTEREST RATE SWAPS

Overnight index swap rates ended off the day's low, tracking a fall in government bond prices, dealers said. 

The one-year swap rate settled at 7.08%, against 7.09% on Thursday. The five-year swap rate ended at 6.63%, compared with 6.64% the previous day of trade.

During the day, traders received fixed rates tracking a sharp rise in gilts, dealers said. The five-year swap rate touched a low of 6.70%.

Most market participants had already placed bets on the inclusion of gilts in global bond indices, dealers said. A rise in US Treasury yields also prompted traders to pay fixed rates.

"I think these levels in the five-year swap rates were fine, given the kind of rise in US Treasury yields," a dealer at another private bank said. "Volume obviously remains higher in the five-year segment as that's where you can make more money."

OUTLOOK

Gilts and swap rates are not traded on Saturdays. On Monday, both are seen opening steady as traders may avoid aggressive bets due to lack of fresh domestic cues, dealers said.

A sharp move in US Treasury yields and crude oil prices could also be a trigger for gilt prices at open.

The yield on the 10-year benchmark 7.26%, 2033 bond is seen in a range of 7.10-7.20%.

India Gilts:Erase most gains on lower-than-expected auction cut-offs

India Gilts: Erase most gains on lower-than-expected auction cut-offs

MUMBAI--1450 IST--Prices of most government bonds erased all gains after lower-than-expected price cut-offs at the 330-bln-rupee gilt auction, dealers said. Earlier, gilts were up on the announcement of their inclusion in JPMorgan's Global Bond Index – Emerging Markets suite.

At the auction today, the government sold 80 bln rupees of the 7.06%, 2028 bond, 140 bln rupees of the 7.18%, 2033 bond, and 110 bln rupees of the 7.30%, 2053 bond.

Among on-the-run gilts up for auction, the benchmark five-year bond pared all gains owing to weak demand at the auction, dealers said.

"We had already factored in the news of inclusion. Those who had bought at the time of rumours, need to exit their positions at some time," a dealer at a state-owned bank said. "We had bid higher than 100.40 rupees on the 10-year bond. It must be some other participant that bid lower." The market now awaits the full auction result for further clarity, dealers said.

The Reserve Bank of India set the cut-off for the 7.18%, 2033 paper at 100.31 rupees, against expectations of 100.40 rupees. The cut-off for the 7.06, 2028 bond was set at 99.54 rupees, much lower than the estimate of 99.68 rupees in an Informist poll. Meanwhile, the central bank set the cut-off price for the 7.30%, 2053 bond at 99.55 rupees, against expectations of 99.74 rupees.

The prevailing tight liquidity conditions in the banking system weighed on demand for the benchmark five-year paper at the auction, dealers said. 

At the start of trade today, liquidity in the system was estimated to be in a deficit of 1.48 trln rupees, the highest level since April 2019. On Thursday, liquidity was in a 1.12-trln-rupee deficit.

Adding to the dull demand at the auction was the rise in US Treasury yields, and crude oil prices hovering around the crucial $95-per-barrel mark, dealers said. 

The yield on the 10-year US Treasury note was at 4.49%, a multiyear-high, as compared to 4.45% at the time of Indian market close on Thursday. US Treasury yields continued their upward movement on Thursday as the market digested lower-than-expected initial jobless claims data. Initial jobless claims came in at 201,000, below the Dow Jones' forecast of 225,000, and were the lowest level since January.

"If not for the bond inclusion, we would have been near the 7.40% yield on the 10-year paper. The morning rally was not backed by the macros," the dealer said.

Dealers also said that fears of a spike in inflation weren't over, as from October, there would be no advantage of a high base effect.

Moreover, flows from the bond inclusion will be from June 2024, and it was too soon to rally because of that, dealers said. Government bonds will be included in JPMorgan's Global Bond Index – Emerging Markets suite starting on Jun 28 over a 10-month period, the New York-headquartered financial service provider said on Thursday.

Analysts at HSBC have projected $30 bln of inflows into government bonds from the inclusion in JPMorgan's index.

According to data on the Reserve Bank of India's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 517.20 bln rupees at 1448 IST, compared with 342.85 bln rupees at 1430 IST on Thursday.
 

For the rest of the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.05-7.18%, while that on the 7.18%, 2033 bond is seen at 7.05-7.15%. (Nishat Anjum)

India Gilts: Off highs; mkt awaits 330-bln-rupee bond auction result

MUMBAI--1152 IST--Prices of government bonds were off the day's high as traders sold their gilt holdings at a profit, dealers said. Gilts, however, remained up on inclusion in JPMorgan's Global Bond Index – Emerging Markets suite.

After the initial rise in prices, traders avoided placing aggressive bets awaiting the 330-bln-rupee gilt auction result, dealers said.

The market remained divided regarding the demand at the auction, dealers said. "It is a very dicey situation right now. There is selling pressure in the secondary market. At the same time, there is build-up of short positions in the 10-year paper," a dealer at a private bank said. "So, the auction will go through, but will have to see at what levels."

The government looked to sell 80 bln rupees of the 7.06%, 2028 bond, 140 bln rupees of the 7.18%, 2033 bond, and 110 bln rupees of the 7.30%, 2053 bond. 

Dealers speculated that the state-owned bank may pick up the five- and 10-year papers lined up at the auction, but would avoid aggressive bets. Meanwhile, long-term investors, including insurers and provident funds, were expected to buy the 2053 paper.

"PSU (public sector undertaking) banks who sold at 100.30-100.35 rupees in the last few days, why would they come to buy at 100.40 rupees?" a dealer at a state-owned bank said. State-owned banks were net sellers for the last two trading sessions.

If the bond auction cut-off comes in along the expected lines, bond prices may rise further, dealers said. Ahead of today's trading session, the market had widely expected the rise in gilts to be much sharper. 

"If we (bond market) rallied so much on the rumours of inclusion, then the current levels on the actual news are not justified at all," the dealer said. "We might rally once more if the demand is good at the auction and head towards 7.05% (on the benchmark 2033 paper)."

Government bonds will be included in JPMorgan's Global Bond Index – Emerging Markets suite starting on Jun 28 over a 10-month period, the New York-headquartered financial service provider said Thursday. This development comes after several years of a no-show to take forward the talks that first began in 2013.

Even though the market has disregarded a sharp rise in US Treasury yields, traders are worried about unfavourable global cues, dealers said.

US Treasury yields continued their upward movement on Thursday as the market digested lower-than-expected initial jobless claims data. Initial jobless claims came in at 201,000, below the Dow Jones' forecast of 225,000, and were the lowest level since January. The yields touched multiyear highs, as investors assessed the Federal Reserve's forward guidance.
 

Yield on the 10-year US Treasury note was at 4.49% as compared to 4.45% at the time of Indian market close on Thursday.

According to data on the Reserve Bank of India's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 337.65 bln rupees at 1152 IST, compared with 136.55 bln rupees at 1230 IST on Thursday.
 

For the rest of the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.05-7.15%, while that on the 7.18%, 2033 bond is seen at 7.05-7.11%. (Nishat Anjum)

India Gilts: Sharply up on inclusion in JPMorgan's Global index

MUMBAI--0930 IST--Prices of government bonds rose sharply today on inclusion of India's gilts in JPMorgan's Global Bond Index – Emerging Markets suite, dealers said. The rise was, however, limited due to traders selling their holdings at a profit.

"The market has already dragged yields down from 7.25% to 7.17% on the benchmark 7.26%, 2033 bond, so the downside is more limited," a dealer at a state-owned bank said. "Also, lots of profit booking already in action."

Traders had heavily bought in the last few trading sessions on the hope of inclusion in global bond index. Now, if they take the yields on the benchmark 10-year, 2033 bond to 7.05% in early trade, then there would be a lot of selling pressure and a lack of buying interest at those levels, dealers said.

Dealers said traders want to lighten their portfolio before taking fresh positions now that bond index inclusion has become a reality. 

Moreover, the market would refrain from rallying any more ahead of the 330-bln-rupee gilt auction, scheduled at 1030-1130 IST, dealers said. "Traders are expected to pick up a lot of stock at the bonds auction. State-owned banks will not be required today," a dealer at a private bank said. Typically, state-owned banks add to firm demand at auction, owing to their large portfolios.

The current market levels should sustain till the auction, dealers said. Further, demand at the auction would determine whether the market reaches the crucial 7.05% level on the 10-year bond, or close at the current levels, dealers said.

The government will sell 80 bln rupees of the 7.06%, 2028 bond, 140 bln rupees of the 7.18%, 2033 bond, and 110 bln rupees of the 7.30%, 2053 bond. 

Government bonds will be included in JPMorgan's Global Bond Index – Emerging Markets suite starting on Jun 28 over a

10-month period, the New York-headquartered financial service provider said Thursday. This development comes after several years of a no-show to take forward the talks that first began in 2013.

Analysts at HSBC have projected $30 bln of inflows into government bonds from the inclusion in JPMorgan's index, which could drive down the government's borrowing cost by as much as 15 basis points immediately, according to some market participants.

According to data on the Reserve Bank of India's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 157.20 bln rupees at 0930 IST, compared with 63.90 bln rupees at 0930 IST on Thursday.
 

During the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.05-7.12%, while that on the 7.18%, 2033 bond is seen at 7.05-7.11%. (Nishat Anjum)

India Gilts: Seen surging on inclusion in emerging mkt bond index

MUMBAI – Prices of government bonds are seen opening sharply higher on the news of Indian government bonds' inclusion in the JPMorgan's Global Bond Index – Emerging Markets suite, dealers said. The bond market has been rife with speculation on the matter over the past month.

The yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.05-7.10% today as against 7.17% on Thursday. The yield on the 7.18%, 2033 bond is seen at 7.02-7.08% against 7.14% the previous day.

Some traders may avoid placing large bets on caution ahead of the gilt auction, dealers said. The government will sell three gilts worth 330 bln rupees, later in the day. It will sell 80 bln rupees of the 7.06%, 2028 bond, 140 bln rupees of the 7.18%, 2033 bond, and 110 bln rupees of the 7.30%, 2053 bond. 

Traders may also take cues from the demand at the weekly gilt auction, to gauge investors' appetite at the prevailing market levels, dealers said.

Dealers also said that if the yield on the benchmark 10-year 2033 bond falls to 7.05%, then traders may sell their gilt holdings at a profit, dealers said. This may prevent a further rise in gilts.

Government bonds will be included in JPMorgan's Global Bond Index – Emerging Markets suite starting on Jun 28 over a 10-month period, the New York-headquartered financial service provider said Thursday. This development comes after several years of a no-show to take forward the talks that first began in 2013.

Analysts at HSBC have projected $30 bln of inflows into government bonds from the inclusion in JPMorgan's index, which could drive down the government's borrowing cost by as much as 15 basis points immediately, according to some market participants.

India's gilts will hold the maximum 10% weightage on the GBI-EM Global Diversified Index, and 8.7% weight on the flagship index for global emerging market debt, the release said. The process will be completed by Mar 31, 2025, with a 1% increase in weightage each month.

Only bonds eligible under the Fully Accessible Route with an outstanding equivalent of $1 bln or higher and maturing after December 2026, will be added to the index, the release said. Around 27 trln rupees, or $330 bln, of India's bonds are eligible for inclusion in the index, JPMorgan said.

All bonds issued by the government in its current borrowing calendar for Apr-Sep are eligible, except gilts issued with a maturity of 40 years. Sovereign green bonds, which saw a maiden issue worth 160 bln rupees in 2022-23 (Apr-Mar), will also be eligible. (Nishat Anjum)

End

US$1 = 82.93 rupees

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

Edited by Avishek Dutta

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