Informist, Monday, Sep 4, 2023
By Nishat Anjum
MUMBAI – Prices of government bonds ended sharply down as traders placed short bets, dealers said. Moreover, a rise in US yields on Friday also weighed on the gilts.
The 10-year benchmark 7.26%, 2033 bond closed at 100.36 rupees, or 7.21% yield, against 100.62 rupees, or 7.17%, on Friday. The 7.18%, 2033 bond closed at 100.07 rupees, or 7.17% yield, against 100.28 rupees, or 7.14%, the previous trading day.
Traders refrained from placing aggressive bets in short-term bonds, given the uncertainty around the rate trajectory, dealers said. The short-end papers are most rate-sensitive, so the market may not be ready to bet in that segment.
“Even if there is a continued pause or a delayed cut, it is the short-end will be beaten more,” a dealer at a state-owned bank said. “So, unless there is clarity on that front, traders will not find any interest in the 5-year bond.” Volume also remained low in the short-term bonds.
Traders placed short bets in the long-term papers as they expect the yields, both globally and back home, to remain higher going forward, dealers said. The market widely expects no rate cuts in the next 12 months.
The gilts market has lacked significant domestic cues after the Apr-Jun GDP data was in line with expectations, dealers said. The movement of the government bonds has largely been driven by the global cues.
In early trade, foreign investors were expected to trim their gilt holdings after Economic Affairs Secretary Ajay Seth on Saturday told Informist in an interview that there was no plan to offer tax incentives to foreigners for India’s listing on global bond indices.
However, it did not pan out during the day as foreign investors awaited for further developments on that front, dealers said. After being disappointed twice before, by news around the bond index inclusion, this time investors remained more cautious before taking any action.
“This is not something new from the government side. They have earlier also said they have no such plans,” a dealer at a private bank said. “Probably, that is why nobody is eager to bet on it right now.”
The yield on the benchmark 10-year US Treasury note settled at 4.18% on Friday, compared with 4.11% at the end of Indian market hours. A rise in US Treasury yields narrows the interest rate differential between the safe-haven asset and emerging market debt, making the latter less appealing to foreign investors.
US yields were up due to a mixed set of August jobs report and also as traders booked profits ahead of the Labor Day holiday today.
Rise in the US unemployment rate to 3.8% in August from 3.5% in July suggests the US Federal Reserve may hold off on further rate hikes as the impact of previous monetary tightening plays out in the economy. However, the US economy added 187,000 jobs in August, more than the consensus estimate, indicating the labour market was still tight.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the turnover today was 330.40 bln rupees, compared with 396.00 bln rupees on Friday. There were no trades with the digital rupee.
OUTLOOK
On Tuesday, gilts are seen opening steady due to lack of significant domestic cues, 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 7.18-7.23%.
India Gilts: Sharply down as traders place short bets, US yields up
MUMBAI–1510 IST–Prices of government bonds fell sharply today as traders placed short bets, dealers said. A rise in US Treasury yields on Friday also weighed on the gilts.
“There is no fundamental change in the view as of right now. Today’s movement is largely tracking US yields,” a dealer at a state-owned bank said. “Some traders would give placing short bets, which probably would cover intraday.”
Volume in the short-term bonds remained low as traders avoided betting in the segment due to a lack of clarity, or fresh cues regarding the rate trajectory, dealers said.
In early trade, foreign investors were expected to trim their gilt holdings after Economic Affairs Secretary Ajay Seth on Saturday told Informist in an interview that there was no plan to offer tax incentives to foreigners for India’s listing on global bond indices.
However, it did not eventuate as foreign investors awaited for further developments on that front, dealers said. “They have been burnt twice because of the news around bond inclusion, so now they would not act hastily,” the dealer said.
Yield on the benchmark 10-year US Treasury note settled at 4.18% on Friday, compared with 4.11% at the end of Indian market hours.
In the US, the unemployment rate was 3.8% in August, against 3.5% in July, which reaffirmed that the US Federal Reserve may hold off on further rate hikes as the impact of previous monetary tightening plays out in the economy. However, the US economy added 187,000 jobs in August, more than the consensus estimate, indicating the labour market was still tight.
According to data on the Reserve Bank of India’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 249.10 bln rupees at 1510 IST compared with 268.85 bln rupees at 1530 IST on Friday.
For rest of the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.17-7.21%, while yield on the 7.18%, 2033 bond is seen at 7.14-7.19%. (Nishat Anjum)
India Gilts: Dn as US ylds up; traders avoid bets in short-term bonds
MUMBAI–0938 IST–Prices of government bonds fell, tracking a rise in the US Treasury yields, dealers said. US Treasury yields rose on Friday after a mixed set of data on employment in August, and as traders booked profits ahead of the Labor Day holiday.
After the initial fall in prices, gilts may trade in a narrow range for the rest of the day due to lack of significant domestic cues, dealers said. The domestic market has lacked firm cues after the Apr-Jun GDP data was in line with expectations.
Traders refrained from placing bets in short-term bonds, given the tight liquidity conditions and uncertainty around the rate trajectory, dealers said.
“There are three possibilities around rates right now – either a hike, or a pause, or a cut. But there is no clarity on either of these,” a dealer at a state-owned bank said. “Till that doesn’t happen, traders won’t show interest in the shorter end.”
The short-end papers are most rate-sensitive, so the market may not be ready to bet in that segment, dealers said. On top of that, tight liquidity also weighed on the bonds.
Despite liquidity being in surplus, it stayed below 1 trln rupees, considered comfortable by the market, dealers said. At the close of trade on Friday, liquidity in the system was estimated to be in a surplus of 851.65 bln rupees, up from 802.34 bln rupees on Thursday.
Meanwhile, the yield on the benchmark 10-year US Treasury note settled at 4.18% on Friday, compared with 4.11% at the end of Indian market hours.
In the US, the unemployment rate was 3.8% in August, against 3.5% in July, which reaffirmed that the US Federal Reserve may hold off on further rate hikes as the impact of previous monetary tightening plays out in the economy. However, the US economy added 187,000 jobs in August, more than the consensus estimate, indicating the labour market was still tight.
According to data on the Reserve Bank of India’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 37.05 bln rupees at 0935 IST compared with 27.05 bln rupees at 0930 IST on Friday.
During the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.17-7.21%, while yield on the 7.18%, 2033 bond is seen at 7.14-7.19%. (Nishat Anjum)
India Gilts: Seen down on rise in US yields; domestic cues absent
MUMBAI – Government bond prices are seen opening lower tracking a rise in US Treasury yields, even as losses may be restricted due to a lack of significant domestic cues, dealers said.
Today, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.14-7.20% against 7.17% on Friday. The yield on the 7.18%, 2033 bond is seen 7.12-7.16% against 7.14% the previous day.
The yield on the benchmark 10-year US Treasury note settled at 4.18% on Friday compared with 4.11% at the end of Indian market hours. A rise in US Treasury yields narrows the interest rate differential between the safe-haven asset and emerging market debt, making the latter less appealing to foreign investors.
US yields were up due to a mixed set of August jobs report and also as traders booked profits ahead of the Labor Day holiday today.
Rise in the US unemployment rate to 3.8% in August from 3.5% in July suggests the US Federal Reserve may hold off on further rate hikes as the impact of previous monetary tightening plays out in the economy. However, the US economy added 187,000 jobs in August, more than the consensus estimate, indicating the labour market was still tight.
Foreign investors may trim their gilt holdings after Economic Affairs Secretary Ajay Seth on Saturday told Informist in an interview that there was no plan to offer tax incentives to foreigners for India’s listing on global bond indices.
The commentary makes India’s sovereign bonds being included in indices operated by JPMorgan and FTSE Russell unlikely in the current review period in September and October, which may discourage traders who have front-run their bets ahead of the announcement, dealers said.
Demand for gilts is expected to remain robust if prices fall from current levels, despite a lack of enthusiasm from traders to pick up the 7.18%, 2037 gilt at its auction on Friday, dealers said. A lack of state and corporate bond issuances continues to drive investors into gilts.
The Reserve Bank of India on Friday said 12 states will raise 157 bln rupees through the sale of bonds on Tuesday. According to the indicative calendar for state borrowing in Jul-Sep, 16 states were expected to raise 223 bln rupees through bonds this week.
Traders are keeping a keen eye on the rise in crude oil prices in the international market, even though the broad consensus remains that commodity prices will fall from here, dealers said. On Friday, Brent crude oil for November delivery rose 2% to $88.55 a barrel, as crude prices hit their highest levels in seven months on supply concerns. (Aaryan Khanna)
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Manisha Baxla
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