Informist, Tuesday, Jun 13, 2023

By Nishat Anjum

MUMBAI – Prices of government bonds ended higher after India's May CPI data released on Monday was slightly lower than expected at 4.25%, dealers said. However, traders avoided placing aggressive bets due to caution ahead of the US inflation data, due for release after market hours.

The 10-year benchmark 7.26%, 2033 bond ended at 101.79 rupees, or 7% yield, against 101.66 rupees, or 7.02% yield on Monday. During the day, the 10-year, 2033 bond traded between the day's high of 101.80 rupees and low of 101.71 rupees.

Some traders also bet on a benign US CPI data for May, aiding the gilt prices, dealers said. The US CPI print is expected to play a crucial role in guiding the US Federal Reserve's monetary policy decision. The headline inflation is expected to decline to 4.1% on year in May from 4.9% in April, according to a Reuters poll. This is a key data ahead of the Fed policy decision on Wednesday.

"People were positioning in G-sec (government securities) expecting US CPI to come somewhere around 4% or below," a dealer at a primary dealership said. "Fed's hawkish pause is already priced in, now the dot plot will be important."

The US Federal Open Market Committee's dot plot is a chart that illustrates each committee member's projection of where the Federal funds rate will be at the end of a particular period. 

Traders would also keenly eye the comments from the Fed Chair Jerome Powell, which may lend cues to future policy action by central bank. According to the CME Fedwatch tool, about 79% futures traders believe the Fed will keep its rate unchanged, while the rest expect a 25-basis-point hike.

So far, the US rate-setting panel has hiked rates by 500 bps from near zero in 14 months, making it one of the most aggressive rate hike cycle.

Back home, gains in the short-term papers were capped as traders remained hesitant to bid aggressively on these bonds as they do not see the rate cuts in this calendar year any more, dealers said. 

The rate cuts were pushed back after the Reserve Bank of India's recent commentary on inflation, dealers said. Prior to which, the market expected the rate cuts in December. The central bank, in its monetary policy statement, refocused inflation readings to the medium-term target of 4%.

"Even if the Fed pauses and doesn't sound as hawkish, in my sense our 10-year (2033 bond) will trade between 6.98-7.03% yield levels," a dealer at a state-owned bank said. "We have seen these levels sustain before, it would be difficult to break them."

India's headline inflation rate moderated to a 25-month low of 4.25% in May. According to a poll by Informist, the headline inflation rate for the month was seen at 4.4%.

According to data on RBI's Negotiated Dealing System-Order Matching platform, the turnover today was 427.95 bln rupees, compared with 352.10 bln rupees on Monday. Meanwhile, trades aggregating 450 mln rupees were settled in seven deals with the digital rupee today, as against 250 mln rupees settled in five deals on Monday.

OUTLOOK

On Wednesday, government bonds are seen taking cues from US May CPI data, which may give insight to the rate trajectory in the world's largest economy, dealers said.

Traders may also avoid aggressive bets during the day on caution ahead of the US FOMC meeting outcome due Wednesday.

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

The yield on the 10-year benchmark 7.26%, 2033 bond is seen at 6.98-7.06%.

India Gilts: Up as traders bet on benign US CPI data; FOMC meet eyed

MUMBAI--1432 IST--Prices of government bonds inched higher as traders bet on a benign US CPI data for May and a pause in rate hikes by the US Federal Reserve this month, dealers said.

"People are probably taking positions ahead of the US inflation data and Fed meeting outcome," a dealer at a state-owned bank said. "Even if the Fed opts for a hawkish pause, which is what the market expects, it would end the uncertainty and bonds will probably rally from there."

The US CPI print is expected to play a crucial role in guiding the Fed's monetary policy decision on Jun 14. The headline inflation is expected to decline to 4.1% on year in May from 4.9% in April, according to a Reuters poll.

According to the CME Fedwatch tool, about 76% futures traders believe the Fed will keep its rate unchanged, while the rest expect a 25-basis-point hike.

Gains in the short-term bonds were capped as traders avoided aggressive bets on expectation that there will be no more rate cuts this calendar year, dealers said.

The concentration of volume in the long-term paper shows that traders were hesitant to bet on the short end as they do not see interest rate cuts in this calendar year any more, dealers said. Prior to the domestic rate setting panel's meeting last week, the market was pricing in rate cuts in December.

The rate cuts were pushed back after the Reserve Bank of India's recent commentary on inflation, dealers said. The central bank, in its monetary policy statement, refocused inflation readings to the medium-term target of 4%.

Slightly better-than-expected India May CPI data also aided gilt prices, dealers said. The headline inflation rate moderated to a 25-month low of 4.25% in May. According to a poll by Informist, the headline inflation rate for the month was seen at 4.4%.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 289.40 bln rupees at 1430 IST compared with 200.95 bln rupees at 1430 IST on Monday.

For rest of the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 6.98-7.02%.  (Nishat Anjum)

India Gilts: Remain up; market awaits US May inflation data

MUMBAI--1200 IST--Prices of government bonds remained up after the India May CPI data was slightly lower than expected at 4.25%, dealers said. However, traders avoided placing aggressive bets ahead of the US inflation data, due for a release after market hours.

The market also awaits the auction result of state government securities to gauge the supply pressures after the quantum of the state government bonds increased over last few weeks, dealers said. Today, 11 states looked to raise 225.50 bln rupees through bonds.

"PSUs (state-owned banks) may bid for higher yield levels because after the Fed (US Federal Reserve) pauses, yield on the 10-year (benchmark) g-sec could go as low as 6.97% in the next two-three days," a dealer at a state-owned bank said. "Yield curve may then flatten unlike steepening that was expected last week."

Dealers speculated that the state-owned banks bid aggressively for the 10-year papers. However, an increase in supply may widen the yield spread between the benchmark 10-year 7.26%, 2033 bond and 10-year state government bond.

At the state government bond auction on Jun 6, the cut-off yield on states' 10-year bond was set in the range of 7.32-7.34%, a spread of 34-36 basis points over the 10-year benchmark 7.26%, 2033 bond issued by the Centre. 

The US CPI print is expected to play a crucial role in guiding the Fed's monetary policy decision. The headline inflation is expected to decline to 4.1% on year in May from 4.9% in April, according to a Reuters poll. This is a key data ahead of the Fed policy decision on Jun 14.

According to the CME Fedwatch tool, about 82% futures traders believe the Fed will keep its rate unchanged, while the rest expect a 25-basis-point hike.

Back home, the headline inflation rate moderated to a 25-month low of 4.25% in May. According to a poll by Informist, the headline inflation rate for the month was seen at 4.4%.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 144.10 bln rupees at 1150 IST compared with 71.30 bln rupees at 1130 IST on Monday.

For rest of the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 6.98-7.02%.  (Nishat Anjum)

India Gilts: Up as India May CPI eases further; fall in US ylds aids

MUMBAI—-0945 IST—-Prices of government bonds were higher as the domestic headline inflation print for May came in slightly better than expected at 4.25%. Moreover, a slight fall in US Treasury yields also aided the prices, dealers said.

"There is a little bit of positivity because of our CPI, especially core that was also lower," a dealer at a private bank said. "Prices will remain more or less around the current levels today as people are watchful for the US CPI now and the FOMC (Federal Open Market Committee) outcome."

While the domestic headline inflation rate moderated to a 25-month low of 4.25% in May, core CPI, which excludes food and fuel, declined to a three-year low of 5.0% in May from 5.2% in April. According to a poll by Informist, the headline inflation rate for the month was seen at 4.4%.

The cooling trajectory of inflation has strengthened traders' bets for a pause in repo rate hike for this calendar year at least, dealers said. The Reserve Bank of India's Monetary Policy Committee kept the repo rate unchanged at 6.50% at its June policy review, and retained the stance of "withdrawal of accomodation". 

Meanwhile, the yield on the 10-year benchmark US Treasury note was marginally down by 3 basis points, at 3.73% in early trade, as against at the end of Indian market hours on Monday. 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.

US yields fell ahead of key US inflation data, due for release after domestic market hours today, and the Federal Reserve's policy decision on Wednesday. 

The US Labor Department will publish the CPI print for May later today, which is expected to play a crucial role in guiding the Fed's monetary policy decision. The headline inflation is expected to decline to 4.1% on year in May from 4.9% in April, according to a Reuters poll. 

According to the CME Fedwatch tool, about 82% futures traders believe the Fed will keep its rate unchanged, while the rest expect a 25-basis-point hike. 

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the marketwide turnover was 49.60 bln rupees at 0945 IST compared with 16.75 bln rupees at 0935 IST on Monday.

During the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 6.98-7.02%.  (Kasthuri Akhil)

India Gilts: Seen tad up after better-than-expected India's May CPI

MUMBAI – Prices of government bonds are seen opening higher today as India's CPI inflation data for May came in slightly better than expected at 4.25%, dealers said.

Today, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.00-7.05% as against 7.02% on Monday.

Data released on Monday showed that the domestic headline inflation rate moderated to a 25-month low of 4.25% in May. The decline in retail inflation during the month was primarily due to the statistical effect of a high base.

The CPI inflation rate for May came in below the consensus estimate. According to a poll by Informist, the headline inflation rate for the month was seen at 4.4%.

During the day, prices are expected to move in a narrow range due to the lack of any other significant cues in the domestic market. Traders may keenly eye the demand at the auction for state government securities due to the large quantum of debt supply, dealers said. 

Today, 11 states will look to raise 225.5 bln rupees through the sale of bonds.

The market also awaits the US CPI print for May, due today. The data is going to be crucial in light of the US Federal Reserve's two-day policy meeting, which starts today, dealers said. The central bank is likely to assess the inflation figure before coming to a decision. 

Headline inflation in the US is expected to decline to 4.1% on year in May from 4.9% in April, according to a Reuters poll. 

Market participants largely expect the Federal Reserve to hold its key rate unchanged at the current level of 5.00-5.25%. According to the CME Fedwatch tool, about 82% futures traders believe the Fed will keep its rate unchanged, while the rest expect a 25-basis-point hike.  (Kasthuri Akhil)

End

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

Edited by Akul Nishant Akhoury

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