Informist, Friday, Jun 2, 2023
By Nishat Anjum
MUMBAI – Most on-the-run government bonds erased gains as traders sold their gilt holdings after slightly lower-than-expected cut-offs at 330-bln-rupee gilt auction, dealers said. However, short-term papers ended higher after firm demand at the auction for 7.06%, 2028 paper.
“The state-owned banks had bid around the cut-off level only for the 10-year 7.26%, 2033 paper, so there was not much movement after auction result,” a dealer at a state-owned bank said. “The (state-owned) insurer that was rumoured to be in the auction, in my opinion, it alone can not have so much demand.”
The 10-year benchmark 7.26%, 2033 bond ended at 101.92 rupees, or 6.98% yield, unchanged from Thursday.
For most dealers, the cut-off on the 2033 bond was largely along expected lines. A state-owned insurance company was speculated to have bid aggressively for the 10-year bond earlier in the day, which had raised the cut-off expectations on the paper, dealers said.
Meanwhile, the 14-year benchmark 2036 paper was slightly down as traders sold their gilt holdings at a profit after the cut-off price on the long-term 7.36%, 2052 bond was set lower than market expectation, dealers said. Dealers speculated that demand from pension funds and insurance companies was not as firm as they had expected initially.
“In my view, there is a bit of exhaustion in filling up on duration (long-term papers) amongst mutual funds and foreign banks also. So slight steepening will probably happen going forward,” a dealer at another state-owned bank said. “…we have seen considerable interest in 7.06%, 2028 paper today, both in auction and in secondary market.”
After the auction, some traders paid fixed rates in the five-year overnight indexed swap rates and stepped up purchases of five-year government bonds, aiding the rise in its price, dealers said.
Meanwhile, with demand from Insurance companies seen receding, the prices of long-term bonds remained a cause of concern for traders, dealers said. Traders expect insurer flows to likely decline going forward as a result of the new tax norms, dealers said.
In the Union Budget for 2023-24 (Apr-Mar), Finance Minister Nirmala Sitharaman had proposed to tax income from life insurance policies, other than unit-linked insurance plans, with a premium or aggregate premium exceeding 500,000 rupees a year. The proposed provision came into effect on Apr 1.
The Reserve Bank of India set the cut-off price on the 10-year benchmark 7.26%, 2033 bond at 101.95 rupees, against expectations of 101.99 rupees in an Informist poll, while the cut-off price on the 2052 bond at 102.07 rupees, against the expected 102.17 rupees.
In early trade, bond prices rose tracking an overnight fall in US Treasury yields, dealers said. US Treasury yields fell as data showed contraction in manufacturing activity and lower labour costs, leading to speculation that the US Federal Reserve will keep policy rates unchanged at its upcoming meeting.
The yield on the benchmark US Treasury note fell by 6 basis points to 3.61%, compared to the end of Indian market hours on Thursday. 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.
According to data released by the Institute for Supply Management, US manufacturing Purchasing Managers Index fell for the seventh straight month to 46.9 in May from 47.1 in April. A reading above 50 shows expansion in activity, while one below that indicates contraction.
Data from the Labour Department showed US worker productivity slumped in Jan-Mar, according to a Reuters report. The data also showed sharp downward revision in labour costs in Oct-Mar. The US reported 232,000 jobless claims for the week ended May 27.
Over 70% of market participants expect the US Federal Reserve to keep rates unchanged at 5.00-5.25% in its next policy meeting, according to CME group’s FedWatch tool.
According to data on RBI’s Negotiated Dealing System-Order Matching platform, the turnover today was 466.10 bln rupees, compared with 593.10 bln rupees on Thursday. Meanwhile, trades aggregating 200 mln rupees were settled in four deals with the digital rupee today, as against 250 mln rupees settled in five deals on Thursday.
OUTLOOK
Bonds are not traded on Saturdays.
Gilts are seen opening steady on caution ahead of the three-day Monetary Policy Committee meeting scheduled to start on Tuesday, dealers said.
Traders may 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 6.95-7.03%.
India Gilts: Erase most gains on tad lower-than-view auction cutoffs
MUMBAI—-1450 IST—-Prices of government bonds erased most gains as traders sold their gilt holdings following slightly lower-than-expected auction result, dealers said.
The Reserve Bank of India set the cut-off price on the 10-year benchmark 7.26%, 2033 bond at 101.95 rupees, against expectations of 101.99 rupees in an Informist poll. For most dealers, the cut-off on the 2033 bond was largely along expected lines.
A state-owned insurance company was speculated to have bid aggressively for the 10-year bond earlier in the day, which had raised the cut-off expectations on the paper, dealers said. “For state-owned banks, the cut-offs have come as per what we had expected. It was only after the bidding, that the rumour about demand from a state-owned insurer started which over-hyped the market,” a dealer at a state-owned bank said.
Meanwhile, the 14-year benchmark 2036 paper was slightly down as traders sold their gilt holdings at a profit after the cut-off price on the long-term 7.36%, 2052 bond was set lower than market expectation, dealers said. Dealers speculated that demand from pension funds and insurance companies was not as firm as they had expected initially.
With demand from Insurance companies seen receding, the prices of long-term bonds remained a cause of concern for traders going forward, dealers said. Traders expected insurer flows may decline as a result of the new tax norms, dealers said.
In the Union Budget for 2023-24 (Apr-Mar), Finance Minister Nirmala Sitharaman had proposed to tax income from life insurance policies, other than unit-linked insurance plans, with a premium or aggregate premium exceeding 500,000 rupees a year. The proposed provision came into effect on Apr 1.
The Reserve Bank of India set the cut-off price on the 2052 bond at 102.07 rupees, against the expected 102.17 rupees cut-off in an Informist poll.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the marketwide turnover was 330.65 bln rupees at 1500 IST, compared with 452.65 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 6.96-6.99%. (Kasthuri Akhil)
India Gilts: Up as US ylds fall; demand at gilt auction seen firm
MUMBAI–1200 IST–Prices of government bonds remained up, tracking a fall in US Treasury yields, dealers said. However, traders avoided placing aggressive bets ahead of the result of a 330-bln-rupee gilt auction.
At the auction, state-owned banks and a state-owned insurer are likely to have bid aggressively for the 10-year benchmark 7.26%, 2033 bond, dealers speculated. The state-owned insurer likely stepped up purchases of the 10-year bond to deploy funds it received at the end of the previous month. Meanwhile, the 7.36%, 2052 bond saw robust demand from pension funds, according to dealers.
“PSUs (state-owned banks) have been selling a lot in last few days, so most probably they planned to buy at the auction today,” a dealer at a private bank said. “After the auction, we have been hearing a wide range of cut-off on the 10-year paper. However, it looks like demand was quite good.”
State-owned banks have net sold 65.81 bln rupees worth of gilts in the last two trading sessions.
Dealers speculated that the 7.06% 2028 paper saw firm demand from state-owned banks at the auction. Typically, state-owned banks keep the 7-year paper in their held-to-maturity portfolio.
The yield on the 10-year 2033 paper may fall to 6.93-6.95% if the auction cut-off prices are higher than expected, dealers said. However, it may not sustain during the day as traders would soon sell their bond holding at a profit. According to poll by Informist, the cut-off price on the 10-year benchmark 2033 bond is seen at 101.99 rupees or 6.97% yield.
Moreover, with no expected change in the repo rate and policy stance at the Monetary Policy Committee’s meeting on Jun 6-8, it would be difficult for the yield on 10-year benchmark bond to sustain below 6.95%, dealers said.
At the auction, 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.
According to data on the Reserve Bank of India’s Negotiated Dealing System–Order Matching platform–the marketwide turnover was at 164.10 bln rupees at 1200 IST, compared with 118.25 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 6.95-6.99%. (Nishat Anjum)
India Gilts: Up as Us yields fall; traders eye 330-bln-rupee auction
NEW DELHI – Government bonds rose, tracking an overnight fall in US Treasury yields, dealers said. However, the gains were capped as traders refrained from placing large bets ahead of a 330-bln-rupee gilt auction.
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.
“The market opened better because of US yields,” a dealer at a primary dealership said. “There is auction today, market is waiting for that.”
US Treasury yields fell as data showed contraction in manufacturing activity and lower labour costs, leading to speculation that the US Federal Reserve will keep policy rates unchanged at its upcoming meeting.
The yield on the benchmark US Treasury note fell by 6 basis points to 3.61%, compared to the end of Indian market hours on Thursday. 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.
On the domestic front, the overall sentiment remained positive, dealers said. Traders expect prices to rise further post the outcome of the MPC’s meeting on Jun 6-8 as the domestic rate-setting panel is seen continuing with the pause on interest rates.
According to data on the Reserve Bank of India’s Negotiated Dealing System–Order Matching platform–the marketwide turnover was 28.85 bln rupees at 0925 IST, compared with 41.40 bln rupees at 0925 IST on Thursday.
During the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 6.95-7.03%. (Anjali)
India Gilts: Seen higher as US ylds dn; traders eye demand at auction
MUMBAI – Prices of government bonds are expected to open higher, tracking an overnight fall in US Treasury yields. However, traders may place short bets ahead of a 330-bln-rupee auction today, which may limit gains, dealers said.
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.
Today, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 6.94-7.00%, against 6.98% on Thursday.
US Treasury yields fell as data showed contraction in manufacturing activity and lower labour costs, leading to speculation that the US Federal Reserve will keep policy rates unchanged at its upcoming meeting.
The yield on the benchmark 10-year US Treasury note fell by 6 basis points to 3.61% in early Asian trade compared to the end of Indian market hours on Thursday. 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.
Data showed that manufacturing Purchasing Managers’ Index for the US fell for the seventh straight month to 46.9 in May from 47.1 in April. A reading above 50 shows expansion in activity, while one below that indicates contraction.
Further, US worker productivity slumped in Jan-Mar, according to a report by Reuters. The data also showed a sharp downward revision in labour costs in Oct-Mar. Applications for jobless claims in the US in the week ended May 27 stood at 232,000.
Investors are now awaiting a US non-farm payrolls report, due later today, which is expected to further strengthen their interest rate view. Over 74% of Fed futures traders now expect the US Federal Reserve to keep rates unchanged at 5.00-5.25% at its policy meeting on Jun 13-14, according to CME group’s FedWatch tool.
Back home, market sentiment may remain upbeat as traders expect prices to rise further following the outcome of the Monetary Policy Committee’s meeting on Jun 6-8. The committee is seen continuing with the pause in repo rate, dealers said. (Kasthuri Akhil)
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Manisha Baxla
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