Informist, Monday, Mar 27, 2023
By Anjali
NEW DELHI – Government bond prices ended on a mixed note today. Long-term bonds were up as mutual funds stepped up purchases on increase in inflows in their debt schemes, as they will no longer benefit from long-term capital gains and indexation benefits after Apr 1.
The Finance Bill, 2023 stripped the benefits on long-term capital gains that debt mutual funds enjoy and plugged the tax arbitrage between fixed deposits of banks.
“There’s mutual fund buying in the longer tenures, that’s what has caused this market movement,” said a dealer at a private sector bank. “They were selling in the short tenures; five-year is quite far down.”
According to amendments to the Finance Bill, income from investments in mutual funds, where not more than 35% is invested in equity shares of domestic companies, will not get long-term capital gains and indexation benefits and will be taxed at the individual’s tax rate for investments after Apr 1.
Currently, capital gains arising from transfer of mutual fund units, other than equity-oriented funds, held for more than three years, are considered long term, and are taxed at 20% with indexation benefit.
Uncertainty around the Reserve Bank of India’s policy decision in April also weighed on short-term bonds. However, the 7.26%, 2032 bond traded in a thin band due to lack of significant domestic cues, dealers said.
The 10-year benchmark 7.26%, 2032 bond ended at 99.70 rupees, or 7.30% yield, against the previous close of 99.64 rupees, or 7.31% yield. The 7.26%, 2033 bond ended at 99.74 rupees, or 7.30% yield, against the previous close of 99.67 rupees, or 7.31%.
Meanwhile, traders disregarded the rise in US Treasury yields for a large part of the day due to caution ahead of the government’s borrowing calendar for the new financial year starting Apr 1. Informist had reported on Mar 14, quoting a senior finance ministry official, that the government might continue with the practice of front-loading its borrowing in the first half of the year, where it may opt to conduct 55-58% of gross bond issuances for 2023-24 in Apr-Sep. In absolute terms, this works out to 8.49-8.95 trln rupees. The government’s gross borrowing target for 2023-24 (Apr-Mar) is 15.43 trln rupees.
“Market is expecting a borrowing between 55-60% in H1,” a dealer at a state-owned bank said. “The calendar will give fresh cues to the market. Until then, gilts will trade at current levels.”
After a 25-basis points hike by the US Federal Reserve, a small segment of the market expects the Monetary Policy Committee of the RBI to pause its rate hikes, dealers said. However, majority still expects the committee to go for a 25 bps rate hike in its upcoming meeting. The market also largely expects the repo rate to top out at 6.75% after a final hike of 25 bps next week, dealers said.
Bond prices were down early in trade, tracking a rise in US Treasury yields due to caution over the turmoil in the global banking system.
According to data on RBI’s Negotiated Dealing System-Order Matching platform, the turnover was 372.80 bln rupees, compared with 388.20 bln rupees on Friday. Trades aggregating 100 mln rupees were settled with the digital rupee pilot in two deals as against none on Friday.
OUTLOOK
On Tuesday, bond prices are seen opening steady due to lack of significant domestic cues, dealers said. Traders may take cues from overnight movement in US Treasury yields and crude oil prices.
The yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.25-7.35%.
India Gilts: Remain in thin band due to lack of firm domestic cues
NEW DELHI–1530 IST–Government bond prices traded in a thin band on lack of significant domestic cues. Traders disregarded the rise in US Treasury yields due to uncertainly around domestic rate hike view, dealers said.
“Gilts will trade at these levels only until the borrowing calendar and Monetary Policy Committee meeting,” a dealer at a private bank said. “Borrowing calendar is more or less known, so the decision of Monetary Policy Committee is awaited more.”
However, some dealers said that the anticipation of a large gilt supply in the new financial year limited the rise in domestic bond prices despite a sharp fall in US Treasury yields. This, as a result, may prevent the yield on the benchmark 2032 bond from falling below the psychologically crucial 7.30% mark, dealers said.
Informist had reported on Mar 14 that the government might continue with the practice of front-loading its borrowing in the first half of the year, where it may opt to conduct 55-58% of gross bond issuances for 2023-24 in Apr-Sep, a senior finance ministry official told Informist. In absolute terms, this works out to 8.49-8.95 trln rupees. The government’s gross borrowing target for 2023-24 (Apr-Mar) is 15.43 trln rupees.
Traders were biased towards long positions as the market was divided into segments who expect of a 25 basis points hike and the remaining expect a pause in April, dealers said.
According to data on the Reserve Bank of India’s Negotiated Dealing System-Order Matching platform, the market-wide turnover was 231.45 bln rupees at 1525 IST, compared with 251.45 bln rupees at 1500 IST on Friday.
For the rest of the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.28-7.37%. (Anjali)
India Gilts: Recover early losses; traders disregard rise in US ylds
NEW DELHI–1250 IST–Government bond prices recovered early losses as the market disregarded the rise in US Treasury yields amid caution ahead of the meeting of the Reserve Bank of India’s Monetary Policy Committee next week, dealers said. Traders also await the release of the borrowing calendar for the new financial year starting Saturday.
“There is a segment in the market which is receiving (fixed rates) in the OIS market despite a rise in US yields because they think there will be a pause,” a dealer at a primary dealership said. “A 25-basis-point hike is already discounted.”
The five-year overnight swap rate fell 2 bps to 6.22% during the day, whereas, the one-year swap rate remained flat at the opening level of 6.72%.
The meeting of the central bank’s Monetary Policy Committee is scheduled from Apr 3 to Apr 6, which is expected to bring clarity on the rate-hike trajectory.
After a 25-bps hike by US Federal Reserve, a small segment of the market expects the RBI to pause its rate hikes, dealers said. However, majority still expects the Monetary Policy Committee to go for a 25 bps rate hike in its upcoming meeting. The market also largely expects the repo rate to top out at 6.75% after a final hike of 25 bps next week, dealers said.
Prices were down in early trade, tracking a rise in US Treasury yields due to caution over the turmoil in the global banking system. Volume continued to be low due to lack of significant cues. “Volume is very low to say anything,” a dealer at a primary dealership said. “People are placing intraday bets majorly.”
According to data on the Reserve Bank of India’s Negotiated Dealing System-Order Matching platform, the market-wide turnover was 127.90 bln rupees at 1250 IST, compared with 137.00 bln rupees at 1230 IST on Friday.
For the rest of the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.28-7.37%. (Anjali)
India Gilts: Down as US ylds up; large state security supply due Tue
NEW DELHI–0935 IST–Prices of government bonds were down, tracking a rise in US Treasury yields, dealers said. The yield on the benchmark 10-year US Treasury note rose to 3.38% from 3.31% at the end of Indian market hours on Friday.
“We are tracking US Treasury as it rose again today after it fell on Friday,” a dealer at a state-owned bank said. “And also, there is large SDL supply (state-government securities auction).”
US Treasury yields rose as traders remained cautious about the turmoil in the global banking system, after shares of Deutsche Bank fell on Friday. Germany’s largest bank has lost a fifth of its value so far this month and the cost of its five-year credit default swaps, a form of insurance for bondholders, jumped to a four-year high on Friday, based on data from S&P Market Intelligence.
Meanwhile, traders eyed the sale of 407.14 bln rupees of state bonds on Tuesday, the last scheduled state government securities auction for the financial year ending March.
Traders lack significant domestic cues until the release of the borrowing calendar for the new financial year starting April, dealers said. Traders are also eyeing the meeting of the Monetary Policy Committee, scheduled from Apr 3 to Apr 6, for clarity on the rate-hike trajectory. Traders in the domestic market remained firm on expectations of a 25-bps rate hike by the Monetary Policy Committee in April, dealers said.
Lack of significant domestic cues kept volume lows. According to data on the Reserve Bank of India’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 17.20 bln rupees at 0935 IST, compared with 37.75 bln rupees at 0945 IST on Friday.
During the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.28-7.37%. (Anjali)
India Gilts: Seen steady on lack of firm cues in domestic market
MUMBAI – Prices of government bonds are seen opening steady due to lack of significant cues in the domestic market. Traders expected gilts to trade in a thin band until the start of the new financial year in April, dealers said.
Today, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.30-7.35%, against 7.31% on Friday.
Prices may move within a narrow range as traders expect a large supply of gilts in the new financial year starting April, dealers said. Informist had reported on Mar 14 that the government might continue with the practice of front-loading its borrowing in the first half of the year, where it may opt to conduct 55-58% of gross bond issuances for 2023-24 in Apr-Sep, a senior finance ministry official had told Informist. The government’s gross borrowing target for 2023-24 (Apr-Mar) is 15.43 trln rupees.
During the day, domestic bonds are expected to track US Treasury yield movement, dealers said. The yield on the benchmark 10-year US Treasury note closed flat at 3.38% on Friday, against Thursday’s close, as traders remained cautious while they assessed the turmoil in the global banking system after Deutsche Bank’s shares plummeted on Friday.
Amidst the banking crisis overseas, the market looked forward to the meeting of the Monetary Policy Committee, scheduled from Apr 3 to Apr 6, for further clarity on the rate-hike trajectory back home. Traders still expected the domestic rate-setting panel to go for a 25-basis-point interest rate hike in April. (Kasthuri Akhil)
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Ashish Shirke
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