Informist, Thursday, Aug 31, 2023
By Aaryan Khanna
NEW DELHI – Prices of government bonds ended higher due to a fall in US Treasury yields as fears of a rate hike by the Federal Reserve eased after growth and labour data was softer than expected, dealers said.
The 10-year benchmark 7.26%, 2033 bond today closed at 100.63 rupees, or 7.17% yield, against 100.50 rupees, or 7.19%, on Wednesday. The 7.18%, 2033 bond closed at 100.31 rupees, or 7.14% yield, against 100.18 rupees, or 7.15%, the previous day.
The ADP National Employment report showed that US private payrolls increased less than expected in August, rising by 177,000 jobs. Economists polled by Reuters had forecast private employment to increase by 195,000.
Meanwhile, Apr-Jun GDP growth was downwardly revised on Wednesday to 2.1% from the previous estimate of 2.4%. The softer-than-expected economic data reaffirmed bets that the Fed may not hike rates any further.
According to the CME FedWatch Tool, close to 11% of Fed future traders expect a hike of 25 basis points in the September policy review, while others expect rates to remain unchanged at 5.25-5.50%.
The yield on the benchmark 10-year US Treasury note fell to 4.10% at the end of Indian market hours compared with 4.15% on Wednesday. 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.
Foreign banks were speculated to have stepped up purchases in the 7.18%, 2033 bond as it was eligible for global bond indexes, as hopes built that India’s government bonds would be announced for inclusion after the current round of reviews in September and October, dealers said.
“The pressure on the buying side has been building up as US yields have fallen,” a dealer at a foreign bank. “But there is not enough demand under 7.15% (yield on the 7.26%, 2033 bond), and mutual funds are likely to have sold another chunk today.”
According to data compiled from the Clearing Corp of India, mutual funds have sold 32.22 bln rupees of gilts over the last two days. Funds have chosen to book profits after stocking up on gilts last week, dealers said.
Traders were not confident that overseas cues alone would be able to push the 10-year benchmark yield below 7.15%. However, a fall in the 10-year benchmark US yield to near 4% could spur enough buys to break the 7.15% mark in India’s 10-year benchmark yield, dealers said.
Bonds featured at the 390-bln-rupee weekly auction on Friday lagged gains in other gilts today as traders made room for their fresh issuance, dealers said. The government will sell 80 bln rupees of the 6.99%, 2026 bond, 70 bln rupees of the 7.17%, 2030 bond, 120 bln rupees each of the 7.18%, 2037 bond and the 7.25%, 2063 bond at the auction.
Demand at the auction is seen robust, even as aggressive bets may be limited ahead of further economic data in India and the US. The 2063 bond would likely be well bid by pension funds, which have been deploying their cash holdings to lock in returns as the Jul-Sep quarter and heavy supply near its end, dealers said.
However, demand from life insurance has been lagging in the last two auctions and will be keenly gauged at the debt sale on Friday, dealers said.
Traders are looking ahead to the US personal consumption expenditures price index print for July, due later today, and the non-farm payrolls report for August due on Friday, as these may provide insight into further US monetary policy action, dealers said.
“We are not out of the woods yet, but the sense everyone is getting is that US data is going to point to no further rate hikes,” a dealer at a state-owned bank said. “August (CPI) inflation is going to be the key factor for us, otherwise we are quite bullish on gilts right now.”
India’s CPI inflation in August is expected to print above 7% in August, after a reading of 7.44% on year in July, a 15-month high. Regardless, the Reserve Bank of India’s Monetary Policy Committee is likely to stand pat on the policy repo rate at 6.50% until at least Apr-Jun 2024, dealers said.
According to data on the RBI’s Negotiated Dealing System-Order Matching platform, the turnover today was 454.40 bln rupees, compared with 399.35 bln rupees on Wednesday. Meanwhile, there were no trades with the digital rupee today.
OUTLOOK
On Friday, gilts are seen opening steady ahead of the 390-bln-rupee weekly auction, dealers said.
After market hours, government data showed India’s GDP grew 7.8% on year in Apr-Jun, in line with expectations. The reading is not seen lending any cues to gilt prices, dealers said.
Traders await the US personal consumption expenditures price index print for July, due later today, and the non-farm payrolls report for August due on Friday, as these may provide insight into further US monetary policy action, dealers said.
A sharp move in US Treasury yields and crude oil prices could also be a trigger for gilt prices at the opening.
The yield on the 10-year benchmark 7.26%, 2033 bond is seen in a range of 7.14-7.20%.
India Gilts: Rise as US yields fall; lack of domestic cues caps gains
NEW DELHI–1420 IST–Prices of government bonds rose further owing to a fall in US Treasury yields, but gains were limited by the lack of significant domestic cues, which kept traders on the sidelines ahead of the release of key data, dealers said.
The yield on the 10-year benchmark US Treasury note was at 4.11%, compared with 4.15% at the end of Indian market hours on Wednesday. Yields fell after the US Apr-Jun GDP estimate was revised 30 basis points lower to 2.1%, suggesting that the US Federal Reserve’s aggressive rate hike cycle may be resulting in lower demand.
However, traders were not confident that overseas cues alone would be able to push the 10-year benchmark yield below 7.15%. Short sellers did not opt to cover their bets to a large extent, while traders looked to sell their holdings for profit on any rise in prices ahead of further data points, dealers said.
India’s GDP data for Apr-Jun, scheduled for 1730 IST, may offer cues for gilt prices. On the other hand, the market has already factored in a high growth reading, which is also in line with the Reserve Bank of India’s expectation, which may have few monetary policy implications, dealers said.
The US personal consumption expenditures price index print for July is scheduled to be released at 1800 IST, while non-farm payrolls data for August is scheduled for release on Friday. While domestic gilts may be less sensitive to movements in US Treasury yields, a fall in the 10-year benchmark yield towards 4% could spur enough buys to break the 7.15% mark in India’s 10-year benchmark yield, dealers said.
“In the US, people are reacting to data that is starting to come out a bit more positive and suggest the Fed doesn’t need to hike further,” a dealer at a private bank said. “But traders look ahead to rate cuts, and in the case of India, there are no rate cuts coming for a while, and there is no significant data point that has printed here.”
According to data on the Reserve Bank of India’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 300.45 bln rupees compared with 285.30 bln rupees at 1430 IST on Wednesday.
For the rest of the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.15-7.19%. (Aaryan Khanna)
India Gilts: Tad up in thin trade; traders avoid aggressive bets
MUMBAI–0926 IST–Prices of government bonds rose marginally as the US Treasury yields fell overnight, dealers said. However, traders avoided placing aggressive bets on caution ahead of key economic data in the US due after market hours, dealers said. The trade volume also remained low.
Yields on the benchmark 10-year US Treasury note was at 4.11%, as compared to 4.15% at the end of Indian market hours on Wednesday.
“If we look at how yields were traded in the US, we can understand the level of caution despite favourable data,” a dealer at a private bank said. “Here also, because all eyes are on US data, traders are not eager to risk it.”
In the US, Treasury yields were largely unchanged on Wednesday after a day of choppy trade. Yields fell in early trade after weaker-than-expected growth and labour market data. However, yields again rose as traders sold their bond holdings ahead of inflation and jobs data due later in the week.
The US private payrolls increased less than expected, rising by 177,000 jobs last month. Economists polled by Reuters had forecast private employment to increase by 195,000. Meanwhile, Apr-Jun GDP growth was downwardly revised on Wednesday to 2.1% from the previous 2.4% estimate.
The market awaits the US Federal Reserve’s preferred inflation gauge, the personal consumption expenditures price index print for July, due at 1800 IST, and the non-farm payrolls report for August due on Friday, as these may provide insight into further US monetary policy action, dealers said.
According to data on the Reserve Bank of India’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 19.20 bln rupees at 0926 IST compared with 58.95 bln rupees at 0930 IST on Wednesday.
During the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.15-7.19%. (Nishat Anjum)
India Gilts: Seen opening higher as US yields fall overnight
MUMBAI – Prices of government bonds are seen opening slightly higher tracking an overnight fall in US Treasury yields, dealers said. Traders may avoid aggressive bets ahead of economic data due after market hours, both in the US and back home.
Today, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.16-7.21% as against 7.19% on Wednesday.
The yield on the benchmark 10-year US Treasury note was at 4.11% in early Asian trade compared with 4.15% at the time of Indian market close on Wednesday. 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 slightly overnight after a day of choppy trade. The market digested weaker-than-expected growth and labour market data. The ADP National Employment report showed that the US private payrolls increased less than expected, rising by 177,000 jobs last month. Economists polled by Reuters had forecast private employment to increase by 195,000.
Meanwhile, Apr-Jun GDP growth was downwardly revised on Wednesday to 2.1% from the previous 2.4% estimate. The softer-than-expected economic data reaffirmed bets that the US Federal Reserve may not hike rates any further.
According to the CME FedWatch Tool, close to 11% of Fed future traders expect a hike of 25 basis points in the September policy review, while others expect rates to remain unchanged at 5.25-5.50%.
Traders will look ahead to the data releases later in the day. US personal consumption expenditures price index print for July is scheduled to be released at 1800 IST, while India’s Apr-Jun GDP is scheduled to be released at 1730 IST.
According to a poll of 22 economists by Informist, India’s economy is likely to have expanded 7.8% in Apr-Jun, the most in four quarters, as robust domestic demand propelled growth in services activity. (Nishat Anjum)
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Aditya Sakorkar
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