Informist, Thursday, Nov 23, 2023
By Aaryan Khanna
NEW DELHI – Government bond prices ended lower today tracking an overnight rise in US Treasury yields. A recovery in prices on short covering did not sustain till the end of the day as traders remained uncertain of demand at the weekly gilt auction on Friday, dealers said.
The 10-year benchmark 7.18%, 2033 bond closed at 99.46 rupees, or 7.26% yield, against 99.54 rupees, or 7.24% yield, on Wednesday.
The yield on the benchmark 10-year US Treasury note settled at 4.41% on Wednesday, rising from 4.38% at the time of the Indian market close on the same day. Fresh economic data muddied the outlook for interest rates in the world’s largest economy.
Fresh unemployment insurance claims for the week ended Saturday were at 209,000, down 24,000 from the previous week’s level. The claims were lower than market expectations of 226,000, according to a Reuters poll.
On the other hand, the University of Michigan’s survey showed that inflation expectations of US consumers rose for the second consecutive month, despite growing signs that price increases are in fact slowing. The year-ahead inflation expectation was at 4.5% for November, up from 4.2% in October. Long-run inflation expectations rose to 3.2% from 3.0% last month.
Gilt prices were slightly lower and traded in a narrow band for much of the day, for want of domestic or offshore cues, with US Treasuries not being traded due to the Thanksgiving holiday in the US. Bonds other than the most-traded 7.18%, 2033 gilt ended little changed.
However, prices recovered due to short covering by traders on speculation that demand from investors will be firm at the 300-bln-rupee weekly gilt auction on Friday, dealers said. A public-sector insurer was speculated to have picked up the 7.18%, 2037 bond in the secondary market today, which augurs well for its demand at auction, dealers said.
On Friday, the government will sell 80 bln rupees of the 7.33%, 2026 bond, 100 bln rupees of the 7.18%, 2037 bond, and 120 bln rupees of the 7.25%, 2063 bond. Primary dealerships had increased their short bets to make room for the fresh debt, but short selling was not very lucrative given the expectations of firm demand, dealers said.
Traders speculated that a large corporate house, which had cornered the 10-year bond on offer last week, may bid aggressively for the 14-year bond on Friday, dealers said. However, the buoyant market sentiment was punctured by the end of trade, particularly with the insurer’s purchases trailing off.
“It doesn’t make sense for them to corner two auctions in a row,” a dealer at a private bank said. “Last week, they picked up the 10-year paper, where you will always find an exit, but it’ll be difficult to get that in a longer-tenure paper like the 14-year (bond).”
Investors were also not keen to pick up the 10-year gilt below 7.25%, which was not considered as a lucrative level, while short-term bonds remained out of favour in light of the liquidity deficit, dealers said. Concerns over the Reserve Bank of India’s open market bond sales through auction had also eased on this account.
At the end of trade on Wednesday, liquidity in the banking system was in a deficit of 1.77 trln rupees, as against 1.74 trln rupees on Tuesday, according to RBI data. The liquidity deficit on Tuesday was then the highest since at least 2013, before being surpassed by today’s gap.
Hope of India’s inclusion in Bloomberg Index Services’ widely-tracked indices for sovereign debt is also fading, dealers said. Some investors have raised concerns with Bloomberg over the lack of requisite arrangements in place to enable trade in Indian government bonds, The Economic Times newspaper reported today.
The advisory councils for index inclusion reportedly concluded last week, with corporate houses and private banks buying aggressively to get ahead of a potential announcement for inclusion, dealers said. Among the primary topics to be considered during the council was the “discussion on potential eligibility of India Treasury Fully Accessible Route bond market for the Global Aggregate and the Emerging Market Local Currency Indices”, a release by Bloomberg had said in October.
In September, JP Morgan had announced it would include Indian government bonds in its Global Bond Index – Emerging Markets suite from Jun 28 over a 10-month period.
“I think most people now have a feeling that it has gone past us, the window for this year is not happening, and we’ll get it after JP Morgan shows investors that the logistics are not a hurdle,” a dealer at a primary dealership said.
According to data on the RBI’s Negotiated Dealing System-Order Matching platform, the turnover was 393.30 bln rupees, compared with 373.95 bln rupees on Wednesday. There were two trades worth 100 mln rupees using the wholesale digital rupee pilot, the same as the previous day.
OUTLOOK
On Friday, gilts are seen opening steady ahead of the 300-bln-rupee weekly gilt auction. The auction result is likely the only significant trigger as there aren’t any domestic or offshore cues, dealers said.
The market is also waiting for Bloomberg’s decision on inclusion of India’s sovereign bonds in its widely tracked debt indices.
A sharp move in crude oil prices may also lend cues at the opening. US financial markets were shut today, and will close early on Friday ahead of the Thanksgiving weekend.
The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.22-7.29%.
India Gilts: Recover most losses as traders cover short bets
MUMBAI–-1612 IST–Government bond prices were off lows as traders covered their short bets despite the 300-bln-rupee weekly gilt auction on Friday, dealers said.
“The market sentiment is positive right now,” a dealer at a private bank said. “The market is expecting strong demand at the auction tomorrow, which is why there is some short covering going on by all segments of the market.”
On Friday, the government will sell 80 bln rupees of the 7.33%, 2026 bond, 100 bln rupees of the 7.18%, 2037 bond, and 120 bln rupees of the 7.25%, 2063 bond. Primary dealerships had upped the quantum of short bets to make room for the fresh debt sale, but short selling was not very lucrative in the face of firm demand expected, dealers said.
Traders speculated a large corporate house, which cornered the 10-year bond on offer last week, may bid aggressively on the 14-year bond on Friday. A public-sector insurer was speculated to be picking up the 7.18%, 2037 bond in the secondary market already, which augured well for its demand at auction, dealers said.
While short-term bonds were out of favour, the 7.06%, 2028 bond and off-the-run paper maturing in seven to 10 years were in favour with state-owned banks, which increased demand for on-the-run gilts, dealers said.
Gilts fell earlier as the yield on the benchmark 10-year US Treasury note settled at 4.41% on Wednesday, rising from 4.38% at the time of the Indian market close on the same day. US data showed weekly unemployment claims were more than expected, but inflation expectations also rose, muddying the outlook for interest rates in the world’s largest economy.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 338,75 bln rupees, compared with 306.65 bln rupees at 1630 IST on Wednesday.
For the rest of the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.23-7.28%. (M.C. Adhiinthran and Aaryan Khanna)
India Gilts: Remain down on lack of significant cues
MUMBAI–1308 IST–Prices of government bonds remained down, tracking an overnight rise in US Treasury yields, dealers said. The bonds traded in a range-bound manner as the market lacked significant domestic and global cues.
“It’s going to be a dull day or two,” a dealer at a state-owned bank said. “There are no cues in the market right now. The US markets are shut, our market has already factored in non-inclusion in the Bloomberg index, so it will be dull.”
Dealers speculated that primary dealerships were placing short bets ahead of the upcoming auction. On Friday, the government will sell 80 bln rupees of 7.33%, 2026 bond, 100 bln rupees of the 7.18%, 2037 bond, and 120 bln rupees of the 7.25%, 2063 bond.
State-owned banks were speculated to be on the buying side as the yield level on the 7.18%, 2033 paper is lucrative for them. However, the buying momentum is not aggressive as they would want to buy at the auction as well, dealers said. Foreign banks were also speculated to have made purchases on behalf of foreign investors.
Earlier in the day, the market had opened lower, tracking the overnight rise in US Treasury yields, and some traders trimmed their holdings with hopes of India’s inclusion on the Bloomberg Fixed Income Index turning sour, which also weighed on the prices, dealers said.
Some investors have raised concerns to Bloomberg over the lack of requisite arrangements in place to enable trade in Indian government bonds, a report in the Economic Times newspaper said today.
Bloomberg Index Services was to conduct the Bloomberg Fixed Income Index Advisory Councils in the US, Europe, and Asia in October and November, according to a press release by the firm last month. Domestic traders had speculated the release would come in mid-November. However, dealers said that the expectations for the release had now shifted to Jan-Feb.
For the rest of the day, the market may remain devoid of cues and trade in a thin band, dealers said.
Meanwhile, the rise in US Treasury yields weighed on gilt prices, even as there was no trade in Asian hours. The yield on the benchmark 10-year US Treasury note settled at 4.41% on Wednesday, rising from 4.38% at the time of Indian market close on the same day. Data in the US showed weekly unemployment claims were more than expected, but inflation expectations also rose, muddying the outlook for interest rates in the world’s largest economy.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 140.05 bln rupees, compared with 125.15 bln rupees at 1230 IST on Wednesday.
For the rest of the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.23-7.28%. (M.C. Adhiinthran)
India Gilts: Dn on US yld rise, fading Bloomberg index inclusion hope
NEW DELHI–1000 IST–Prices of government bonds fell tracking an overnight rise in US Treasury yields, along with traders trimming their holdings with hope of India’s inclusion on Bloomberg Index Services’ widely-tracked indices for sovereign debt fading, dealers said.
Some investors have raised concerns to Bloomberg over the lack of requisite arrangements in place to enable trade in Indian government bonds, a report in the Economic Times newspaper said today.
The advisory councils for index inclusion reportedly concluded last week, with corporate houses and private banks buying aggressively to get ahead of a potential announcement for inclusion, dealers said. Among the primary topics to be considered during the council was the “discussion on potential eligibility of India Treasury Fully Accessible Route bond market for the Global Aggregate and the Emerging Market Local Currency Indices”, a release by Bloomberg said in October.
“It’s a blow to one section of the market, not the others,” a dealer at a state-owned bank said. “We had already moved away from that view, but private banks seem to be looking for any trigger to sell after driving up the market last week.”
The rise in US Treasury yields weighed on gilt prices, even as there was no trade in Asian hours. The yield on the benchmark 10-year US Treasury note settled at 4.41% on Wednesday, rising from 4.38% at the time of Indian market close on Wednesday. Data in the US showed weekly unemployment claims were more than expected, but inflation expectations also rose, muddying the outlook for interest rates in the world’s largest economy.
After the activity at the open, gilt trade volumes are likely to stagnate during the day with US and Japan markets shut. The next intraday cue may come from the movement in US yields during European market hours, dealers said. A fall in crude oil prices did not have much impact on gilt prices as Brent crude for January delivery still traded above $80/bbl.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 37.40 bln rupees compared with 20.00 bln rupees at 0930 IST on Wednesday.
During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.23-7.28%. (Aaryan Khanna)
India Gilts: Seen opening steady on lack of significant cues
MUMBAI – Prices of government bonds are seen opening steady due to a lack of firm cues on both the domestic and global fronts, dealers said. Traders may also refrain from placing large bets due to the same.
Today, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.23-7.30%, as against 7.24% on Wednesday.
Meanwhile, traders may take cues from The Economic Times’ report on Indian bonds’ likely entry in the Bloomberg index. Some investors have raised concerns over the lack of requisite arrangements in place to enable trade in Indian government bonds, the article said.
Dealers said increasingly the market had feared that India may not be included in the Bloomberg index this time, therefore, limiting movement in the bonds.
Bloomberg Index Services was scheduled to conduct the Bloomberg Fixed Income Index Advisory Councils in the US, Europe, and Asia in October and November, according to a press release by the firm last month. Domestic traders had speculated the release would come in mid-November. However, now the expectations of the release have shifted to the end of the month, dealers said.
On the global front, US financial markets are shut today on account of Thanksgiving, thereby failing to lend tracking cues to their domestic counterparts, dealers said. The yield on the benchmark 10-year US Treasury note was at 4.38% at the time of Indian market close on Wednesday. Further, dealers expect the yields to be range-bound for the rest of this week and the next due to the lack of firm cues on both the domestic and global fronts.
Dealers speculated that the next major domestic cue expected would be the Reserve Bank of India’s Monetary Policy Committee meeting on Dec 6-8. Most dealers expect the repo rate to remain the same in the coming meeting. The Committee has kept the repo rate at 6.50% in the last four meetings. (M.C. Adhiinthran)
End
US$1 = 83.34 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Ashish Shirke
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