Informist, Friday, May 19, 2023
By Kasthuri Akhil
MUMBAI – Government bonds gave up all gains after the Reserve Bank of India announced its surplus transfer to the government, which was lower than market expectations, dealers said.
The 10-year benchmark 7.26%, 2033 bond ended at 101.72 rupees or 7.01% yield, against 101.89 rupees, or 6.99% yield on Thursday.
“The auction was taken over by nationalised banks, so they are not coming out to sell,” a dealer at a private bank said. “Traders who bought at the expectations of higher dividend are selling, the selling will be soon over, and market will stabilise itself.”
Today, the RBI’s central board of directors approved the transfer of 874.16 bln rupees as surplus to the central government for the financial year 2022-23 (Apr-Mar).
Prices fell despite the amount being sharply higher than the central bank’s surplus transfer of 303.07 bln rupees in the previous financial year as well as the budget estimate for the current financial year.
Traders sold their gilt holdings because they had broadly expected the dividend payment to be of about 1.0-1.5 trln rupees, and had stocked up on bonds earlier with the intention of making profits after the announcement of the expected amount, dealers said.
The Budget for 2023–24 (Apr-Mar) pegs the government’s income from dividends of the RBI and state-owned banks at 480 bln rupees.
However, losses were limited as traders stepped up purchases of the 10-year benchmark 7.26%, 2033 paper as its yield neared 7%, which is considered lucrative, dealers said.
Prices rose marginally after the release of the 330-bln-rupee auction cutoffs. The cut-off price on the 10-year benchmark 7.26%, 2033 bond was set 7 paise higher at 101.93 rupees than the expected level in an Informist poll.
“Traders who had stocked up at the auction at higher levels, would not want market levels to go below that,” a dealer at a private bank said. “But since it did after the RBI’s dividend announcement, panic was created, and they rushed to sell.”
Dealers speculated that the 2033 paper saw firm demand from state-owned banks as they considered the yield levels on the paper lucrative. Further, provident fund organisations and insurance companies were speculated to stock up on the 7.36%, 2052 paper at the auction.
The five-year 2028 paper saw firm demand at the auction, however, traders were still hesitant to place large bets on the paper in the secondary market due to lack of clarity on the policy rate action in June, dealers said.
While one section of the market expects repo rate cuts to set in as early as October, others believe it to be too early for the market to expect the Monetary Policy Committee to initiate rate cuts this soon, dealers said.
Meanwhile, the rise in US Treasury yields, driven by bets of another possible rate hike by the US Federal Reserve in June, also added to the dilemma regarding rate cuts in the domestic market, dealers said. The yield on the benchmark 10-year US Treasury note rose 6 basis points to 3.66% during the day from 3.60% at the end of Indian market hours on Thursday.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform, the turnover was 619.55 bln rupees compared with 386.90 bln rupees on Thursday. No trade was settled with the digital rupee today.
OUTLOOK
Gilts are not traded on Saturdays.
On Monday, bonds are seen opening steady as traders may avoid aggressive bets due to lack of firm domestic cues, 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 6.96-7.05%.
India Gilts: Erase gains on lower-than-expected RBI surplus to govt
MUMBAI–1615 IST–Prices of government bonds erased all gains following the Reserve Bank of India’s announcement of lower-than-expected surplus transfer to the government, dealers said.
“The market fell because the dividend is lower than expected,” a dealer at a primary dealership said. “The expectation was of around 1-1.5 trln.”
The RBI’s central board of directors approved the transfer of 874.16 bln rupees as surplus to the central government for the financial year 2022-23 (Apr-Mar). The amount is sharply higher than the central bank’s surplus transfer of 303.07 bln rupees for the previous financial ended March 2022.
Losses were limited as traders stepped up purchases of the 10-year benchmark 7.26%, 2033 paper at 7% yield level, which is considered lucrative, dealers said.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the marketwide turnover was 528.75 bln rupees at 1615 IST, compared with 326.60 bln rupees at 1630 IST on Thursday.
For the rest of the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 6.99-7.04%. (Kasthuri Akhil)
India Gilts: Tad up post slightly higher-than-expected auction cutoffs
MUMBAI–1420 IST—-Prices of government bonds rose slightly after the 330-bln-rupee auction cutoffs came in slightly higher than market expectations. However, traders maintained caution ahead of the Reserve Bank of India’s dividend payout announcement, due later today, which capped the rise in prices, dealers said.
“Other than demand from provident funds, there was some insurer buying too in the long end,” a dealer at a private bank said. “There has been short covering too at the auction.”
As was the case on Thursday, dealers speculated that state-owned banks were the major participants at the auction, bidding for the 10-year benchmark 7.26%, 2033 paper, as they find the current yield level on the paper below 7%, lucrative, dealers said.
The RBI set the cut-off price on the 2033 paper at 101.93 rupees, against expectations of 101.86 rupees as per an Informist poll.
Meanwhile, traders expected prices to rise if the RBI announces a higher dividend payout to the government, dealers said. The Budget for 2023–24 (Apr-Mar) pegs the government’s income from dividends of the RBI and state-owned banks at 480 bln rupees. However, the market broadly expects the dividend payment to extend to about 1-1.5 trln rupees, dealers said.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the marketwide turnover was 305.25 bln rupees at 1415 IST compared with 235.40 bln rupees at 1405 IST on Thursday.
For the rest of the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 6.92-7.00%. (Kasthuri Akhil)
India Gilts: In thin band; traders await 330-bln-rupee auction result
MUMBAI–1200 IST–Prices of government bonds remained in a thin band as traders were on the sidelines ahead of the 330-bln-rupee gilt auction result. An overnight rise in US Treasury yields also weighed on prices, dealers said.
“The 10-year paper (7.26%, 2033 bond) is in demand among state-owned banks,” a dealer at a state-owned bank said. “The demand for the 5-year (7.06%, 2028 bond) should also be good because of rising expectations of rate cuts and yield curve flattening.”
The government looked to raise 80 bln rupees through the issuance of the 7.06%, 2028 bond; 140 bln rupees of the 7.26%, 2033 bond; and 110 bln rupees of the 7.36%, 2052 bond at the auction held at 1030-1130 IST.
Even though, the five-year 2028 paper likely saw firm demand at the auction, traders still refrained from placing large bets in the secondary market due to lack of clarity on the policy rate action in June, dealers said.
While one section of the market expects repo rate cuts to set in as early as October, others believe it to be too premature to expect the Monetary Policy Committee to initiate rate cuts this soon, dealers said.
Meanwhile, the rise in US Treasury yields, driven by bets of another possible rate hike by the US Federal Reserve in June, also added to the dilemma regarding rate cuts in the domestic market, dealers said. The yield on the benchmark 10-year US Treasury note rose 5 basis points to 3.65% during the day from 3.60% at the end of Indian market hours on Thursday.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the marketwide turnover was 164.60 bln rupees at 1200 IST compared with 150.15 bln rupees at 1130 IST on Thursday.
For the rest of the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 6.95-7.00%. (Kasthuri Akhil)
India Gilts: Tad down on short bets before auction, rise in US yields
NEW DELHI–0920 IST–Government bonds prices were a tad down as traders placed short bets ahead of a 330-bln-rupee gilt auction, dealers said. An overnight rise in US Treasury yields also weighed on gilts.
“The recent data releases yesterday (Thursday) and auction is driving the market right now,” a dealer at a state-owned bank said. “Mostly, it’s short bets because of auction.”
Data from the US suggested that the world’s largest economy was resilient despite the US Federal Reserve’s monetary policy tightening over the past year. Data from the Department of Labor on Thursday showed initial jobless claims in the US fell to 242,000 last week from 264,000 the week prior. Economists from Reuters had forecast a figure of 254,000.
The 10-year benchmark Treasury yield settled at its highest since Mar 3 on more bets of a possible rate hike in June and fading hopes of a quick pivot to rate cuts anytime soon. The policy-sensitive two-year US Treasury yield jumped 12 bps to 4.24%. Concerns over a possible debt default by as early as June also kept bond yields high.
The yield on the benchmark 10-year US Treasury note rose 5 basis points to 3.65% from 3.60% at the end of Indian market hours on Thursday. A rise in US Treasury yields narrows the interest rate differential between the safe-haven asset and emerging market debt, making the latter less appealing to foreign investors.
Back home, traders refrained from placing large bets on short-term bonds due to uncertainty around the rate view, dealers said.
A section of the market expects the domestic rate-setting panel to start rate cuts as early as October. Dealers cited a series of reasons behind this expectation. Apart from seeing headline inflation nearing the RBI’s 4% target in the coming months, negative WPI-based inflation in April is expected to reflect in easing retail inflation in the coming months, dealers said.
WPI inflation moderated to a near-three-year low of (-)0.92% in April from 1.34% in March. The deflation in WPI, the first in 33 months, was primarily due to the statistical effect of a high base and a fall in commodity prices.
Traders disregarded the rise in US Treasury yields because of positive sentiment post consumer inflation data, dealers said.
However, another section of the market thinks it is too early to expect the RBI’s Monetary Policy Committee to cut rates in October, dealers said.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the marketwide turnover was 18.30 bln rupees at 0915 IST compared with 26.00 bln rupees at 0915 IST on Thursday.
During the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 6.95-7.05%. (Anjali)
India Gilts: Seen down; traders may place short bets before auction
NEW DELHI – Government bonds prices are seen opening lower today as traders might place short bets ahead of a 300-bln-rupee gilt auction today, dealers said. An overnight rise in US Treasury yields may also weigh on gilts.
At the auction, the government will sell 80 bln rupees of the 7.06%, 2028 bond; 140 bln rupees of the 7.26%, 2033 bond; and 110 bln rupees of the 7.36%, 2052 bond.
US Treasury yields rose on Thursday, with the 10-year benchmark Treasury yield settling at its highest since Mar 3 on more bets of a possible rate hike in June and fading hopes of a quick pivot to rate cuts anytime soon. The policy-sensitive two-year US Treasury yield jumped 12 bps to 4.24%. Concerns over a possible debt default by as early as June also kept bond yields high.
The yield on the benchmark 10-year US Treasury note rose 5 basis points to 3.65%, against 3.60% at the end of Indian market hours on Thursday. A rise in US Treasury yields narrows the interest rate differential between the safe-haven asset and emerging market debt, making the latter less appealing to foreign investors.
Domestically, positive sentiment might linger in the market today due to expectations of higher dividend payout by the Reserve Bank of India to the government, dealers said. The Budget for 2023–24 (Apr-Mar) pegs the government’s income from dividend of the RBI and state-owned banks at 480 bln rupees. However, the market pegs the dividend payment at about 1.0-1.5 trln rupees, dealers said. (Anjali)
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Akul Nishant Akhoury
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