Informist, Wednesday, May 10, 2023
By Aaryan Khanna and Anjali
NEW DELHI – Prices of most government bonds recovered early losses as traders covered short bets taken earlier in the day ahead of the US CPI print, scheduled for 1800 IST today, dealers said.
The 10-year benchmark 7.26%, 2033 bond ended at 101.51 rupees, or 7.04% yield, against 101.49 rupees, or 7.04% yield, on Monday.
Traders trimmed their holdings early in the day on caution ahead of the release, particularly with India’s CPI print also scheduled on Friday, dealers said. However, dealers later bet on the print pointing to a rate pause at the Federal Open Market Committee’s next meeting in June, which was backed up by the yield on the 10-year US Treasury yield remaining little changed at 3.50% through the day.
The April CPI print is the first key data point on growth and inflation since the US FOMC signalled last week it was moving towards data dependence after undertaking 500 basis points worth of rate hikes since March 2022.
Inflation in the US is expected to have increased 0.4% on month and 5% on year in April, according to a poll of economists by Dow Jones. Meanwhile, core inflation, which excludes food and energy components, is expected to have climbed 0.4%. In March, the headline inflation index reading rose 5% on year, while core was up 5.6%.
According to the CME FedWatch tool, about 78% of Fed fund futures traders expect the Fed to keep the rates unchanged, while the rest see a 25-basis-point hike in June.
State-owned banks were speculated to have stepped up purchases as the 10-year benchmark yield topped 7.05%, which is seen near the upper end of the daily trading band until fresh data from the US and India, dealers said.
“Since 101.40 (10-year benchmark 2033 bond’s price) did not seem like it’d break, so traders started to short cover at the level,” a dealer at a primary dealership said. “Apart from that anything barely happened today. We’ll get to see the main action after CPI data.”
Additionally, dealers speculated that foreign banks have been stocking up on bonds in the past few days because they expect the US inflation data to come in lower than 5% in April–around 4.8-4.9%. Foreign banks likely bet on a lower inflation print after recent economic data showed signs of rate hikes by the US Federal Reserve gradually starting to have an impact on the economy, leading to inflation inching down.
“The trader-led rally is virtually done, the move in the trading range has already happened,” a trader at a private bank said. “Now we’ll move into a period of consolidation, which is why you see volumes have just gone quiet in everything except the 10-year.”
If the US CPI comes out to be higher than expected, the yield on the 10-year paper might rise to 7.08-7.10% levels, dealers said. On other hand, lower inflation reading might pull the yield on the benchmark 10-year paper under 7.00%.
Meanwhile, The cut-off yield on the 182-day T-bill was set higher than expected owing to tight liquidity and low demand for short term papers. The cut-off yield on the 91-day T-bill was set at 6.95%, the 182-day T-bill cut-off was set at 7.03% yield, and that on the 364-day T-bill was set at 7.02%.
“The Reserve Bank of India may take durable liquidity action though open market operations in the second half of the current fiscal year, only after that we can expect it to start cutting rates” a dealer at a primary dealership said.
Traders lacked clarity about the policy rate action by the central bank in the near term. According to dealers, repo rate cuts by the end of the calendar year are likely only if domestic economic growth remains resilient, in line with RBI projections, and headline inflation remains well within the 2-6% tolerance band.
According to data on the Reserve Bank of India’s Negotiated Dealing System–Order Matching platform, the turnover was 308.25 bln rupees, compared with 380.50 bln rupees on Tuesday. Meanwhile, two trades aggregating 100 mln rupees were settled with the digital rupee today compared with four trades aggregating 200 mln rupees on Tuesday.
OUTLOOK
On Thursday, bond prices are seen taking cues from US CPI data, 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 6.95-7.10%.
India Gilts: Most bonds recover losses on short covering before US CPI
MUMBAI–1540 IST–Most government bonds recovered all losses as traders covered short bets due to caution ahead of the US inflation data for April, due at 1800 IST, dealers said.
“Traders are short covering the 10-year (7.26%, 2033) paper right now as they do not want to take the risk of going with a short position before (US) CPI release,” a dealer at a state-owned bank said. “The price will probably not rise above 60 paise (101.60 rupees) as sellers will come in there who had bought at 40 levels (101.40 rupees) in the morning.”
Meanwhile, traders avoided placing large bets on the shorter-term bonds due to lack of clarity on future rate action, dealers said. While, the five-year benchmark 7.38%, 2027 paper was up slightly, the 7.06%, 2028 bond was down in thin trade volume. Traders expect the 2028 paper to succeed the 2027 bond as the new five-year benchmark after a few more auctions, dealers said.
According to data on the Reserve Bank of India’s Negotiated Dealing System-Order Matching platform, the market-wide turnover was 247.50 bln rupees at 1535 IST compared with 317.85 bln rupees at 1535 IST on Tuesday.
For the rest of the day, yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.02-7.06%. (Kasthuri Akhil)
India Gilts: A tad down as US yields rise intraday; US Apr CPI eyed
MUMBAI–1230 IST—-Prices of government bonds fell slightly, tracking a rise in US Treasury yields during the day. Losses were limited as traders avoided placing aggressive bets due to caution ahead of US April CPI data release, dealers said.
The yield on the benchmark 10-year US Treasury bond inched slightly higher to 3.53% during the day from 3.49% at the end of Indian market hours on Tuesday. US yields rose amid rising anticipation for the release of key inflation figures in the US, scheduled 1800 IST.
“The prices are currently at levels where they had to be, given that 7.05-7.06% (yield on 10-year benchmark 2033 paper) have already discounted US inflation levels. That is why prices have fallen,” a dealer at a state-owned bank said.” These levels should now sustain until the (US) CPI number is out.”
According to an economist poll by Dow Jones, inflation is expected to have increased 0.4% on month in April, and 5% on year. Meanwhile, core inflation, which excludes food and energy components, is expected to have climbed 0.4%.
Dealers speculated that foreign banks have been stocking up on bonds in the past few days because they expect the US inflation data to come in lower than 5% in April–around 4.8-4.9%. Foreign banks likely bet on a lower inflation print after recent economic data showed signs of rate hikes by the US Federal Reserve gradually starting to have an impact on the economy, leading to inflation inching down.
Meanwhile, short-term bonds continued to be thinly traded. The cut-offs on the Treasury bills, due to release later in the day, are expected to drive the five-year benchmark 7.38%, 2027 bond’s movement, dealers said.
The cut-off yield on the 91-day T-bill is seen at 6.93%, the 182-day T-bill cut-off is seen at 7.00% yield, and that on the 364-day T-bill is seen at 7.02%, according to an Informist poll held at 1030 IST.
According to data on the Reserve Bank of India’s Negotiated Dealing System–Order Matching platform–the marketwide turnover was 87.50 bln rupees at 1230 IST, compared with 207.45 bln rupees at 1240 IST on Tuesday.
For the rest of the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.03-7.07%. (Kasthuri Akhil)
India Gilts: Steady on caution before US CPI; trade volume low
MUMBAI–0937 IST–Prices of government bonds remained in a thin band as traders avoided placing aggressive bets ahead of the US CPI inflation numbers for the month of April, due today, dealers said. Moreover, volume remained low due to the lack of firm cues.
The US CPI data is scheduled to be released at 1800 IST.
“There is data lined up in the day. Even if it is benign, nobody would like to take bets right ahead of it,” a dealer at a state-owned bank said. “Bonds are going to move in a very narrow range unless there is a surprise factor during the day.”
Traders expect the yield on the 10-year benchmark 7.26%, 2033 paper to stay below the psychologically-crucial level of 7.05% before the US CPI data, dealers said.
The 10-year benchmark 7.26%, 2033 bond traded between the day’s high and low of 101.50 rupees and 101.45 rupees, respectively. Meanwhile, the 7.41%, 2036 traded between 102.24 and 102.26 rupees in five trades.
The trade was limited amongst the shorter-term bonds in the secondary market. The market lacks clarity on the timeline regarding the rate cuts, both in the US and India, which made it difficult to bet in the shorter-term bonds, dealers said.
Most traders remained on the sidelines in the absence of significant cues, keeping the trade volume low, dealers said. With US Treasury yields largely unchanged and no new triggers on the domestic front, the market is not getting steered in any direction. The yield on the benchmark 10-year US Treasury bond inched slightly higher to 3.53% on Tuesday from 3.52% on Monday.
According to data on the Reserve Bank of India’s Negotiated Dealing System–Order Matching platform–the marketwide turnover was 11.60 bln rupees at 0930 IST compared with 57.50 bln rupees at 0930 IST on Tuesday.
During the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.01-7.07%. (Nishat Anjum)
India Gilts: Seen opening steady as traders cautious ahead of US CPI
MUMBAI – Prices of government bonds are seen opening steady as traders may refrain from placing aggressive bets due to caution ahead of the US CPI inflation data for April, due later today, dealers said.
Today, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.01-7.07% as against 7.04% on Tuesday.
Inflation in the US is expected to have increased 0.4% on month in April and 5% on year, according to a poll of economists by Dow Jones. Meanwhile, core inflation, which excludes food and energy components, is expected to have climbed 0.4%. In March, the headline inflation index reading rose 5% on year, while core was up 5.6%.
The inflation data may help traders gauge the interest rate trajectory in the world’s largest economy. In the recent policy review, the US rate-setting panel had changed its policy stance to signal data dependence to determine its next policy action.
According to the CME FedWatch tool, about 78% of Fed fund futures traders expect the Fed to keep the rates unchanged, while the rest see a 25-basis-point hike in June.
Meanwhile, New York Fed President John Williams said on Tuesday that he doesn’t see inflation returning to the 2% target until the next two years. He added that policymakers won’t hold back if additional policy firming is required.
Back home, traders expect the yield on the 10-year benchmark 7.26%, 2033 paper to stay below 7.05% before the US CPI data, dealers said.
The market is likely to track the Treasury bill auction result closely, given the tight liquidity conditions, as it may take the yields on the shorter-term bonds higher, dealers said. The Reserve Bank of India will auction 120 bln rupees of 91-day Treasury bills, 120 bln rupees of 182-day Treasury bills, and 80 bln rupees of the 364-day Treasury bill today.
Traders also await the domestic CPI data, which is scheduled to be released on Friday, dealers said. Traders largely expect the headline inflation to fall below 5% in April, dealers said. India’s consumer price inflation fell to a 15-month low of 5.66% in March. (Nishat Anjum)
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Akul Nishant Akhoury
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