Informist, Tuesday, Jul 18, 2023
By Nishat Anjum
MUMBAI – Prices of government bonds ended higher today following a fall in five-year overnight indexed swap rate and US Treasury yields during the day, dealers said. Moreover, traders rushed to cover their short bets on fears of further fall in US yields.
The 10-year benchmark 7.26%, 2033 bond closed at 101.39 rupees, or 7.06% yield, against 101.26 rupees, or 7.08% yield, on Monday.
The five-year swap rate fell to 6.20% from 6.24% on Monday. Offshore traders received fixed rate in swaps, while the domestic traders unwound their paid bets. Moreover, a large corporate entity is also said to have received fixed rate in the five-year swaps to protect its underlying liability and interest rate payments on debt issuance, dealers said.
“As far as US yields are concerned, every data is quite good. Traders have started to show a little bit of nervousness and do not want to take their short positions forward,” a dealer at a state-owned bank said.
The yield on the benchmark 10-year US Treasury note fell to 3.76% from the day’s high of 3.81%. 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.
US Treasury yields fell during the day as investors await economic data that may provide insight into rate action in the US. In the upcoming meeting on Jul 25-26, Federal Open Market Committee’s decision is expected to provide some direction to the domestic market that has no fresh triggers to offer, dealers said.
According to the CME’s FedWatch tool, 97% of Fed fund futures traders expect the US rate-setting panel to hike the federal funds rate by 25 basis point next week, while the rest expect it to keep rates unchanged at 5.00-5.25%.
The domestic market has already factored in a 25 bps hike this month, and seem optimistic that the US rate-setting panel may not need to hike more this year as the US economy cools down, dealers said.
Traders also covered their short bets on the fears that the US Treasury yields may fall more, dealers said. However, the two-way trade kept the yield on the benchmark 7.26%, 2033 bond around 7.05% level.
“Whenever offshore traders were coming through foreign banks to receive in swaps, foreign banks first bought in G-sec and then received to make money for themselves,” a dealer at primary dealership said. “7.05% (yield on 2033 bond) looks hard to break but overnight if US yield falls, we might see that happening too.”
Dealers speculated that the foreign banks, among others, covered their short bets, while state-owned banks were on the selling side. The market lacked a significant buying momentum due to absence of firm domestic cues, dealers said.
According to data on the Reserve Bank of India’s Negotiated Dealing System-Order Matching platform, the turnover today was 668.75 bln rupees, compared with 527.95 bln rupees on Monday. Meanwhile, trades aggregating 200 mln rupees were settled in four deals with the digital rupee, as against 150 mln rupees settled in three deals on Monday.
OUTLOOK
On Wednesday, government bonds may open steady as traders may avoid aggressive bets due to a lack of firm domestic cues, dealers said.
Traders await the US Federal Open Market Committee’s decision next week amid a lack of key domestic data this week, which may keep gilt prices in a narrowband, dealers said.
Traders may also track any sharp movement in US Treasury yields and crude oil prices.
The yield on the 10-year benchmark 7.26%, 2033 bond is seen in a range of 7.02-7.08%.
India Gilts: Remain up due to intraday fall in US ylds; OIS rates dn
MUMBAI–1445 IST–Prices of government bonds remained up, tracking a fall in US Treasury yields during the day. Moreover, receiving of fixed rates in the five-year overnight indexed swap rate by domestic as well as offshore traders, supported gilts, dealers said.
US Treasury yields fell during the day as investors await economic data that may provide insight into rate action in the US. Traders also await the US Federal Open Market Committee’s meeting next week, where the US rate-setting panel is widely expected to raise the federal funds rate by 25 basis points, dealers said. The yield on the benchmark 10-year US Treasury note fell to 3.76% from 3.81% during the day.
The market may also take cues from commentary by Fed Chair Jerome Powell regarding future policy action. Dealers said traders were cautious in placing large bets ahead of the FOMC meeting, something reflected in the yield on the 10-year benchmark 7.26%, 2033 paper, which remained above the key 7.05% level.
“There is strong resistance at 7.05% level (on the 2033 bond). In my opinion, it’s PDs (primary dealerships) and PSUs (state-owned banks) that are holding the fort. There would be stop-losses if it gains more,” a dealer at a private bank said. “But the way US yields are falling, let’s see till when they will keep it at 7.05%.”
Dealers also said fears of stop-losses being triggered kept the yield on the 2033 bond above 7.05%.
Meanwhile, offshore traders and a corporate entity back home were speculated to be on the receiving end of fixed rates in the OIS market, which continued to support gilt prices for the second consecutive day, dealers said. The five-year swap rate fell to the day’s low of 6.19% from 6.24% on Monday.
According to data on the RBI’s Negotiated Dealing System-Order Matching platform, the market-wide turnover was 548.10 bln rupees at 1440 IST, compared with 301.10 bln rupees at 1430 IST on Monday.
For the rest of the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.03-7.07%. (Nishat Anjum)
India Gilts: Remain up tracking fall in five-year swap rate
MUMBAI–1230 IST–Prices of government bonds remained up tracking a fall in the five-year overnight indexed swap rate, dealers said. Offshore traders received fixed rate in swaps, while the domestic traders unwound their paid bets.
A large corporate entity is also said to have received fixed rate in the five-year swaps to protect its underlying liability and interest rate payments on debt issuance, dealers said.
The five-year swap rate fell to 6.22% from 6.24% on Monday.
“When the yield (on 10-year benchmark 2033 paper) broke 7.12%, it was expected to fall to 7.05%. But there will be huge selling pressure if it goes on to break 7.05%,” a dealer at a state-owned bank said. “Supply pressure is still there, but we’ll have to see how the market absorbs it.”
Dealers said that the yield on 10-year, 7.26%, 2033 bond may not fall below 7.05% as state-owned banks that stocked up on bonds may sell their bond holdings at a profit if yields fall. The yield and price of bonds are inversely related.
After the rise in early trade, prices of government bonds traded in a narrow range as traders avoided aggressive bets on lack of significant domestic cues, dealers said.
Some traders covered their short bets, while some stepped up purchases as the current yield levels seemed lucrative, dealers said.
Traders await the US FOMC policy this month to gauge the rate trajectory in the world’s largest economy, dealers said. As a result, the market lacks significant buying momentum.
According to data on the RBI’s Negotiated Dealing System-Order Matching platform, the market-wide turnover was 303.90 bln rupees at 1230 IST, compared with 177.90 bln rupees at 1230 IST on Monday.
For the rest of the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.04-7.08%. (Nishat Anjum)
India Gilts: A tad up as swap rates fall on likely corporate flows
NEW DELHI–0945 IST–Prices of government bonds were slightly higher today tracking a fall in the five-year overnight indexed swap rate. Traders speculated that a large corporate entity received fixed rates in the five-year swap for the second straight day, to protect its underlying liability and interest rate payments on debt issuance, dealers said.
The five-year swap rate fell marginally to 6.22% from 6.24% on Monday.
Some traders also unwound their paid-fixed rate bets in the five-year contract to prevent further losses, after the swap rate fell sharply from levels around 6.45% over the past week that spurred some buying in the government securities market, dealers said.
“There is a bit of trimming of positions, the volume was very high at 6.45% (five-year swap rate). Stop losses would have got triggered since it has fallen very sharply from the recent high,” a dealer at a private bank said. “This should consolidate around 6.20% in my view.”
Bonds are expected to trade in a narrow range during the day as traders may avoid aggressive bets on lack of fresh triggers in the domestic market, dealers said.
According to data on the RBI’s Negotiated Dealing System-Order Matching platform, the market-wide turnover was 77.05 bln rupees at 0945 IST, compared with 24.00 bln rupees at 0940 IST on Monday.
During the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.05-7.11%. (Kasthuri Akhil)
India Gilts: Seen opening steady on lack of significant domestic cues
NEW DELHI – Prices of government bonds are seen opening steady due to lack of significant cues in the domestic market to place aggressive bets on, dealers said.
Today, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.05-7.12% as against 7.08% on Monday.
Traders will closely watch out for any significant movement in US Treasury yields during the day to get a sense of clarity on its impact on the future trajectory of domestic bond prices, dealers said. The yield on the benchmark 10-year US Treasury note was little changed at 3.80% in Asian trade today, as against 3.79% at the end of Indian market hours on Monday.
Some traders anticipate gilt prices may rise despite heavy gilt supply in Jul-Sep as US yields are expected to fall after the US Federal Reserve’s policy decision on Jul 26, dealers said.
The FOMC’s decision is expected to provide some direction to the domestic market that has no fresh triggers to offer, dealers said. According to the CME’s FedWatch tool, a whopping 97% of Fed fund futures traders expect the US rate-setting panel to hike the federal funds rate by 25 bps next week, while the rest expect it to keep rates unchanged at 5.00-5.25%.
Even though a hike of 25 basis points is widely expected this month, the market seems optimistic that the US rate-setting panel may not hike rates after that as the US economy cools.
There are also some traders in the domestic market that do not see the yield on the 10-year benchmark 2033 bond falling below 7.06-7.05%. As they do not expect gilt prices to rise significantly from the current levels, they may look to sell their bond holdings at a profit at levels considered lucrative, dealers said. (Kasthuri Akhil)
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Deepshikha Bhardwaj
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