Informist, Tuesday, Aug 8, 2023
By Aaryan Khanna
MUMBAI – Government bond prices ended sharply higher today as traders covered their short bets more aggressively near the end of trade with the 10-year US Treasury yield dropping below the key 4% mark, dealers said.
The 10-year benchmark 7.26%, 2033 bond closed at 100.65 rupees, or 7.16% yield, against 100.42 rupees, or 7.20% yield, on Monday.
Gilt prices had risen early in the day, and stayed above the previous close, tracking an overnight fall in US Treasury yields as investors bet on US inflation data, scheduled on Thursday, to show the US Federal Reserve’s past rate hikes have had the desired results in curbing price rise.
While dealers were not convinced the overnight fall would sustain, they covered their short bets as US yields slid through the day, dealers said.
Demand for the safe haven asset boomed following the decision by rating agency Moody’s Investor Service to cut credit ratings on a swathe of US banks, raising spectres of a weakness in the US financial system following aggressive rate hikes.
With this, the US Fed may be at the end of its rate hike cycle, that started near zero and had been increased by 525 basis points between March 2022 and July, dealers said.
The yield on the benchmark 10-year US Treasury note fell to 3.99% at the end of Indian market hours today from 4.10% on Monday. 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.
“More than a few people have got burnt by the volatility in US yields,” a dealer at a private bank said. “People have had to cover shorts because the position was held to a reversal at around 4.02-4.04% levels (on the 10-year US yield).”
Traders also remained wary of placing aggressive bets on overseas cues ahead of the Reserve Bank of India’s Monetary Policy Committee rate decision on Thursday, dealers said.
The central bank is expected to keep monetary policy tight, even as it stands pat on rates and the policy stance at the end of the three-day meeting, which began today, dealers said.
In a poll of 35 economists, treasury heads, and analysts by Informist last week, 34 said they expect the rate-setting panel to keep the repo rate unchanged at 6.50%, while 31 expect the panel to maintain the ‘withdrawal of accommodation’ stance.
Since then, concerns over further repo rate hikes have only increased heading into the policy decisions, dealers said.
Traders expect the RBI to revise its inflation projection for Jul-Sep, as the prints for July and August are seen above the crucial 6% mark, dealers said. Some traders also expect an upward revision in the inflation forecast for 2023-24 (Apr-Mar).
In its June monetary policy statement, the RBI had lowered its inflation forecast for Jul-Sep by 20 basis points to 5.2%. It also reduced its inflation forecast for the current financial year by 10 bps to 5.1%.
The central bank has an inflation target of 4% and a medium-term band of 2-6%.
If inflation tops the comfort band again, the rate-setting panel may hike rates once again despite inflation rising on account of food prices, which are often unaffected by monetary policy measures, dealers said.
Even if there were no repo rate increases, traders expressed some concern that the RBI would introduce measures to reduce surplus liquidity and drive overnight rates higher, dealers said.
“There are rumours of more liquidity measures, definitely the risk for the RBI is to be more hawkish,” a dealer at a primary dealership said. “In my opinion, policy will be a non-event, and that seems to be working fine for them if you look beyond this food inflation data this quarter (ending September).”
According to data on the RBI’s Negotiated Dealing System-Order Matching platform, the turnover today was 406.05 bln rupees, compared with 393.60 bln rupees on Monday. Meanwhile, trades aggregating 200 mln rupees were settled in two deals with the digital rupee today, unchanged from Monday.
OUTLOOK
On Wednesday, government bonds are seen opening steady on caution ahead of the Monetary Policy Committee’s meeting outcome, 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 7.14-7.22%.
India Gilts: Up; traders avoid aggressive bets ahead of RBI policy
NEW DELHI–1430 IST–Prices of government bonds remained up tracking a fall in US Treasury yields. Traders avoided aggressive bets due to lack of fresh triggers in the domestic market ahead of the Reserve Bank of India’s policy decision on Thursday, dealers said.
“The 7.18% (yield on the 10-year benchmark 2033 paper) looks like it is supported for now. If it breaks, then we can see the yield fall to 7.13% even before policy,” a dealer at a private bank said. “Hawkish commentary and high inflation are all known and have been discounted, so don’t expect many surprises there.”
The market widely expects the inflation prints for July and August to come in above 6%, dealers said.
Traders avoided stocking up on gilts before the policy review, as they expect prices to fall after RBI Governor Shaktikanta Das’ post-policy statement, wherein he is expected to emphasise the need to maintain tighter monetary conditions for longer, just like the last policy, in a bid to bring inflation closer to its 4% target, dealers said.
Meanwhile, the yield on the benchmark 10-year US Treasury note fell to 4.02% from 4.10% at the end of Indian market hours on Monday, aiding gilt prices, dealers said. Yields fell as investors shifted their focus to US inflation data, to be released on Thursday.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 242.00 bln rupees at 1430 IST, compared with 257.60 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 7.17-7.20%. (Kasthuri Akhil)
India Gilts: Up; trade volume low on caution before MPC meet outcome
MUMBAI–1134 IST–Prices of government bonds remained higher, tracking an overnight fall in US Treasury yields, dealers said. However, trade volumes were low as traders remained on the sidelines due to caution ahead of the three-day Monetary Policy Committee meeting on Thursday.
Gilts traded in a narrow range during the day, as traders refrained from placing aggressive bets, ahead of the policy outcome, dealers said. “People have placed short bets (already) on hawkish policy and inflation figures, so they will not cover before the policy,” a dealer at a state-owned bank said. “The current 10-year paper will continue to be the most liquid for the next two months, so there will be enough time to cover later.”
The government will sell a new 2033 paper at the weekly gilt auction on Friday.
Meanwhile, traders expect the central bank to revise its inflation projection for Jul-Sep, as the prints for July and August are seen above the crucial 6% mark, dealers said. Some traders also expect an upward revision of the inflation forecast for 2023-24 (Apr-Mar).
In its June monetary policy statement, the Reserve Bank of India had lowered its inflation forecast for Jul-Sep by 20 basis points to 5.2%. It also reduced its inflation forecast for the current financial year by 10 bps to 5.1%.
The central bank has an inflation target of 4% and a tolerance band of 2-6%.
Meanwhile, the domestic gilt market has already factored in an expected rise in the retail inflation prints for July and August, dealers said.
As the domestic rate-setting panel is widely expected to keep the policy stance and repo rate unchanged, the market now looks forward to RBI Governor Shaktikanta Das’ statement for cues on the interest rate trajectory, dealers said.
In a poll of 35 economists, treasury heads, and analysts by Informist, 34 said they expect the rate-setting panel to keep the repo rate unchanged at 6.50%, while 31 expect the panel to maintain the ‘withdrawal of accommodation’ stance at the end of its three-day meeting on Thursday.
On the global front, the yield on the benchmark 10-year US Treasury note fell to 4.03% from 4.10% at the end of Indian market hours on Monday. Yields fell as investors shift their focus to US inflation data, to be released on Thursday.
According to data on the Reserve Bank of India’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 106.45 bln rupees at 1130 IST compared with 149.10 bln rupees at 1130 IST on Monday.
For the rest of the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.16-7.22%. (Nishat Anjum)
India Gilts: Rise as US ylds down; mkt cautious before MPC decision
NEW DELHI–0930 IST–Prices of government bonds rose tracking an overnight fall in US Treasury yields. The rise in prices was, however, limited as traders maintained caution ahead of the Reserve Bank of India’s policy decision on Thursday, dealers said.
The yield on the benchmark 10-year US Treasury note fell to 4.06% from 4.10% at the end of Indian market hours on Monday. 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 yields fell as investors shift their focus to US inflation data, to be released on Thursday. Economists polled by Reuters expect US CPI to have increased 0.2% in July from the previous month, the same pace as in June. Moreover, core inflation is expected to have risen 4.7% on an annual basis in July.
Prices are expected to move within a narrow range during the day due to lack of fresh cues in the domestic market. “People have already placed a lot of shorts yesterday (Monday), now there may be shorts at around 100.58-100.60 rupees (price of the 10-year benchmark 2033 paper),” a dealer at a state-owned bank said. “Those with shorts already will get cover as of now, but they’ll wait for the policy to take some action.”
On Thursday, the Monetary Policy Committee is widely expected to keep the repo rate and stance unchanged. The market looks forward to RBI Governor Shaktikanta Das’ commentary. At the post-policy press conference, Das and other RBI officials are expected to remain firm on the central bank’s intention to bring inflation closer to its 4% target, dealers said.
The market expects domestic CPI inflation for July and August to top the RBI’s medium-term target band of 2-6% due to high food inflation caused by monsoon-related disturbances, making the case for the central bank to refrain from hinting at a softer monetary policy at the upcoming review, dealers said.
In a poll of 35 economists, treasury heads, and analysts by Informist, most poll respondents said they expect the RBI to revise its CPI inflation forecast for Jul-Sep and 2023-24 (Apr-Mar) upwards, from 5.2% and 5.1%, respectively, projected at the last MPC meeting in June.
According to data on the Reserve Bank of India’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 16.80 bln rupees at 0930 IST compared with 52.20 bln rupees at 0940 IST on Monday.
During the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.16-7.22%. (Kasthuri Akhil)
India Gilts:Seen slightly higher tracking overnight fall in US yields
NEW DELHI – Prices of government bonds are seen opening slightly higher, tracking an overnight fall in US Treasury yields. Traders may refrain from placing aggressive bets due to caution ahead of the Monetary Policy Committee’s meeting outcome on Thursday, dealers said.
Today, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.16-7.22%, against 7.20% on Monday.
The yield on the benchmark 10-year US Treasury note fell to 4.05% in Asian trade from 4.10% at the end of Indian market hours on Monday. 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 ahead of the release of US inflation data on Thursday. Investors keenly eye the inflation figure to assess if the US Federal Reserve’s past rate hikes have the desired results, and to figure the central bank’s next move.
Gilt prices are expected to move within a narrow range after the initial rise due to lack of buying interest in the market as the domestic market remains devoid of fresh positive triggers. Moreover, traders are expected to place fewer than usual short bets, as the existing 10-year benchmark 2033 bond will not see any primary issuance anymore, dealers said.
The government will sell a new 2033 bond at the auction on Friday, worth 140 bln rupees.
Ahead of the auction, traders may look to cover their short bets on the current 10-year benchmark 2033 paper. However, they may wait for the policy review for more clarity on the trajectory of prices, dealers said.
The domestic rate-setting committee is widely expected to keep the policy stance and repo rate unchanged, dealers said. The market looks forward to Reserve Bank of India Governor Shaktikanta Das’ statement for cues on the trajectory of interest rates.
In poll of 35 economists, treasury heads, and analysts by Informist, 34 said they expected the rate-setting panel to keep the repo rate unchanged at 6.50%, while 31 expect the panel to maintain the ‘withdrawal of accommodation’ stance at the end of its three-day meeting on Thursday.
Traders also expect the central bank to revise its inflation target for Jul-Sep as the print for July and August is seen above the crucial 6% mark, dealers said.
Retail inflation for July and August is expected to top the RBI’s medium-term target band of 2-6% due to a steep rise in prices of food items owing to monsoon-related disturbances, making the case for the central bank to refrain from hinting at a softer monetary policy at the upcoming review, dealers said.
In its June monetary policy statement, the RBI had lowered its inflation forecast for Jul-Sep by 20 basis points to 5.2%. (Kasthuri Akhil)
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Ashish Shirke
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