Informist, Monday, Jun 12, 2023
By Nishat Anjum
MUMBAI – Prices of government bonds rose today as large purchases by the state-owned banks spurred traders to cover their short bets ahead of the India CPI print for May, dealers said. The inflation for the month of May was seen at a 20-month low.
Most on-the-run gilts were in a thin band for a majority of the trading session. However, speculation that the state-owned banks stepped up purchases of the benchmark 10-year 7.26%, 2033 bond led to buying momentum in the market, dealers said. State-owned banks were speculated to have bought the 10-year around 7.03% yield levels, which are considered lucrative, dealers said.
The 10-year benchmark 7.26%, 2033 bond ended at 101.66 rupees, or 7.02% yield, against 101.54 rupees, or 7.03% yield on Friday.
Data released today showed that India’s CPI inflation for May stood at 4.25%. According to an Informist poll, retail inflation rate was estimated to fall to 4.4% in May from 4.7% in April.
It would be in line with the Reserve Bank of India’s latest forecast of 4.6% for Apr-June, and is expected to be a non-event if it is in line with expectations, dealers said.
“This is what you would call a dull day. People just covered their short bets ahead of the inflation data,” a dealer at a private bank said. “From here, it looks like our bonds are going to be driven by demand-supply dynamics more, and less on rate views.”
The concentration of volume in the long-term paper shows that traders were hesitant to bet in 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, dealer said. The central bank, in its monetary policy statement, refocused inflation readings to the medium-term target of 4%.
The market also awaited the inflation data from the US as it may give insight into the interest rate trajectory in the world’s largest economy, dealers said. US inflation data is scheduled to be released on Tuesday after domestic market hours. According to Action Economics, inflation seen easing to 4.2% on year in May against 4.9% in April.
Moreover, the US Federal Open Market Committee’s meeting is scheduled for Tuesday and Wednesday, wherein the central bank is widely expected to keep its benchmark rate unchanged. Fed fund futures traders are pricing in a 75.9% possibility of a pause at this week’s meeting, with a 24.1% chance of a 25-basis-point rate hike, according to CME FedWatch tool.
Traders would also keenly eye the comments from the Fed Chair Jerome Powell, which may lend cues to future policy action by central bank. “The commentary by Powell would be more crucial at this point of time,” a dealer at a state-owned bank said. “At this point, chances of a hike is less, but if Fed is hawkish in its commentary then we will see 7.6-7.7% on the 10-year 2033 bond.”
According to data on RBI’s Negotiated Dealing System-Order Matching platform, the turnover today was 352.10 bln rupees, compared with 384.60 bln rupees on Thursday. Meanwhile, trades aggregating 250 mln rupees were settled in five deals with the digital rupee today, as against 150 mln rupees settled in three deals on Friday.
OUTLOOK
On Tuesday, government bonds are seen opening higher after slightly better-than-expected India retail data for May.
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; traders eye India May CPI data due after mkt hours
MUMBAI–1545 IST–Prices of government bonds rose a tad with the benchmark 10-year 7.26%, 2033 bond leading the gains. Gilt prices rose after it was speculated that state-owned banks had stepped up purchase of the 10-year paper, dealers said.
“It looks like the rise in 10-year bond prices induced some buying momentum,” a dealer at a private bank said. “But the volumes in all other papers, except the 10-year paper, is so low that it is difficult to say if there is a fundamental reason (for the rise) today.”
An intraday fall in US Treasury yields also aided gilt prices, dealers said. Yield on the benchmark 10-year US Treasury note fell to a low of 3.74% from the day’s high of 3.77%. 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.
Trades volume was mostly concentrated in the gilts maturing in 10 years. Short-term papers were not traded heavily as the bets on rate cuts were pushed back after the Reserve Bank of India’s recent commentary on inflation. The central bank in its monetary policy decision refocused inflation readings to the medium-term target of 4%.
Moreover, the market now awaits the India CPI inflation data, scheduled to be released later today, which may give further insight into the rate trajectory back home, dealers said. According to an Informist poll, the retail inflation rate is estimated to fall to a 20-month low of 4.4% in May, down from 4.7% in April.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the marketwide turnover was 252.70 bln rupees compared with 271.20 bln rupees at 1530 IST on Friday.
For the rest of the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.01-7.07%. (Nishat Anjum)
India Gilts: Most on the run gilts in thin band; India CPI data eyed
MUMBAI–1340 IST–Prices of government bonds remained in a narrow range as traders refrained from placing aggressive bets due to lack of significant domestic cues, dealers said. However, the 10-year benchmark 7.26%, 2033 bond was up as traders stepped up purchases around 7.03% yield levels, which are considered lucrative.
“Some PSUs (state-owned banks) bought the 10-year paper, but there is no substantial impact of it on the market,” a dealer at a state-owned bank said.
After the June policy review by the Monetary Policy Committee, traders are hesitant to bet on the short-term papers as they do not see the rate cuts in this calendar year any more, dealers said. Prior to the domestic rate setting panel’s meeting, the market was pricing in rate cuts in December.
Moreover, the market is also cautious ahead of the CPI inflation data scheduled to be released after the market hours, keeping the trade volume low. According to an Informist poll, the retail inflation rate is estimated to fall to a 20-month low of 4.4% in May, down from 4.7% in April.
“Our CPI data might actually become a non-event, unless it is below 4%,” the dealer said. “In my opinion, it’s the US CPI that the people are waiting for.” US CPI data is scheduled to be released at 1800 IST on Tuesday.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the marketwide turnover was 168.85 bln rupees compared with 151.45 bln rupees at 1330 IST on Friday.
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: Steady amid thin trade ahead of India May CPI print
MUMBAI–0935 IST–Prices of government bonds were steady in early trade today as traders kept to the sidelines awaiting fresh data for triggers. Traders were also cautious ahead of the India CPI data for May, due after market hours today, dealers said.
Trade volume was muted and trades were concentrated in on-the-run gilts maturing in 10 and 14 years. Short-term papers are unlikely to be traded heavily during the day, dealers said. Bets on rate cuts were pushed back after the Reserve Bank of India’s commentary on inflation after its monetary policy decision refocused readings to the medium-term target of 4%, which is unlikely soon, dealers said.
Further, the National Statistics Office will release the India CPI data at 1730 IST today. According to an Informist poll, the retail inflation rate is estimated to fall to a 20-month low of 4.4% in May, down from 4.7% in April. According to dealers, the market had already priced a similar reading as early as the beginning of June. The expected print would be in line with the Reserve Bank of India’s latest forecast of 4.6% for the quarter ending June.
“The policy is behind us… now everyone is waiting for the data to give direction,” a dealer at a state-owned bank said. “My sense is these are good levels to buy… we have also started accumulating some, but we’ll have to take a call whether to go with a bigger quantum only after the data.”
The yield spread of the 10-year paper 7.26%, 2033 gilt over the benchmark 5-year, 7.06%, 2028 bond is likely to within 5-8 basis points unless the data suggests that price pressures are easing quicker than what the RBI projects, dealers said.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the marketwide turnover was 16.75 bln rupees compared with 36.15 bln rupees at 0930 IST on Friday.
During the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.01-7.07%. (Aaryan Khanna)
India Gilts: Seen steady ahead of data-heavy week; India CPI eyed
NEW DELHI – Government bonds may open steady as traders are likely to avoid large bets at the beginning of a data-heavy week, beginning with India’s CPI inflation print and industrial production numbers, due for release at 1730 IST today.
Today, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.01-7.07% as against 7.04% on Friday, the highest closing yield since May 10.
Some traders may stock up on the 10-year gilt after trimming their holdings on Friday. State-owned banks may also be looking to add to their portfolios as the benchmark yield approaches the key 7.05% mark, dealers said.
Retail inflation rate is estimated to fall to a 20-month low of 4.4% in May, down from 4.7% in April, according to an Informist poll. This would be in line with the Reserve Bank of India’s latest forecast of 4.6% for the quarter ending June, and is not expected to be a major trigger if it is in line with expectations, dealers said.
Meanwhile, an Informist poll showed industrial growth may remain lacklustre but in positive territory, and is expected to print at 1.4% in April, up from 1.1% in March. Typically, traders do not track the print but will be looking for cues on the country’s economic momentum sustaining after higher-than-expected GDP growth in Jan-Mar, dealers said.
Elsewhere, domestic traders are keenly eyeing the outcome of the US Federal Open Market Committee’s meeting late on Wednesday, with the US policy decision seen lending cues to domestic monetary policy, dealers said. The Federal Reserve’s panel may take cues from the US CPI release on Tuesday, with inflation seen easing to 4.2% on year in May against 4.9% in April, according to Action Economics.
Nearly three-quarters of Fed funds rate traders see a pause at the meeting, with the remainder betting on a 25-basis-point rate increase, according to the CME FedWatch tool. This would be the first time the Fed panel does not hike rates since March 2022.
The market may track sharp moves in US Treasury yields in the run-up to the decision, after the Monetary Policy Committee outcome last week was on expected lines, dealers said. On Thursday, the domestic rate-setting panel kept the policy repo rate unchanged at 6.50% and retained the policy stance of ‘withdrawal of accommodation’. (Aaryan Khanna)
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Aditya Sakorkar
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