Informist, Monday, Dec 4, 2023
By Siddhi Chauhan and Aaryan Khanna
MUMBAI – Prices of government bonds ended higher due to a fall in US Treasury yields, dealers said. However, the gains were limited as traders avoided placing aggressive bets ahead of the Reserve Bank of India Monetary Policy Committee’s three-day meeting starting Wednesday, dealers said.
The 10-year benchmark 7.18%, 2033 bond closed at 99.37 rupees, or 7.27% yield, against 99.23 rupees, or 7.29% yield, on Friday.
“Currently, the market is waiting for the policy (Monetary Policy Committee). We will not see a reaction from the market’s end until we are done with the policy,” a dealer at a state-owned bank said. “So we have MPC, then inflation data, and then on the global front, we have the Federal Open Market Committee meeting.”
Dealers speculated that state-owned banks and foreign banks were on the buying side, as around 7.27% yield levels on the 7.18%, 2033 paper, levels are considered lucrative. Meanwhile, primary dealerships and private banks were speculated on the selling side as they trimmed their bond holdings on caution of the MPC meet, dealers said.
Additionally, tight liquidity in the banking system capped gains in short-term gilts, dealers said. On Sunday, liquidity in the banking system was in a meagre surplus of 262.39 bln rupees, according to the RBI data.
Amongst on-the-run papers, gains were led by the 7.18%, 2037 paper. Traders bought the 14-year paper due to an attractive yield spread between the 10-year benchmark and the 14-year paper. Today, the 14-year paper closed at 7.39% yield, 12 basis points over the benchmark 10-year paper.
Meanwhile, the market widely expects the MPC to maintain status quo on the repo rate and the policy stance, dealers said. In the last policy meeting, the panel kept the repo rate unchanged at 6.50%, while maintaining a ‘withdrawal of accomodation’ stance.
Moreover, dealers said that the market would keep a watch for more clarity on open market auction sales and comments on the liquidity in the banking system by the RBI. In the October policy, RBI Governor Shaktikanta Das said the central bank was mulling open market operation sale auctions to drain liquidity.
The RBI’s surprises at the past two policy reviews on the liquidity front has further kept the market cautious, even as traders are near unanimous in counting on a non-event on Friday, dealers said.
Some investors preferred stocking up on the 14-year, 7.18%, 2037 bond after the state bond auction this week was smaller than expected. The spread between the 10- and 14-year benchmark gilt had widened over the past month as supply of state bonds had mounted, pulling down demand for the 2037 bond, dealers said.
The RBI said 10 states will raise 151.32 bln rupees through the sale of bonds on Tuesday. This is lower than 263.50 bln rupees indicated in the borrowing calendar for Oct-Dec. So far in Oct-Nov, states have borrowed about 18% more than the calendar.
However, even with the US rate view easing substantially, rate hikes in India are unlikely in the next 12 months as the RBI grapples with above-target inflation and growth remaining resilient, unlike economies in developed markets, dealers said.
“The strong GDP data will not allow a quicker rate cut in India,” a dealer at a primary dealership said. “Since the RBI doesn’t have room to cut so much, the US rate view will not translate one-to-one here, no matter how quickly the US begins cutting its rates.”
The next two CPI inflation prints, for November and December, are expected to be above the RBI’s medium-term inflation target band of 2-6%.
According to data on the RBI’s Negotiated Dealing System-Order Matching platform, the turnover was 324.10 bln rupees, compared with 383.60 bln rupees on Friday. There were four trades worth 200 mln rupees today using the wholesale digital rupee pilot, as against no trades on the previous day.
OUTLOOK
On Tuesday, gilt prices are seen opening steady as traders may avoid aggressive bets ahead of the three-day Monetary Policy Committee meeting, that starts Wednesday, dealers said.
The RBI’s rate-setting panel is expected to maintain status quo on the repo rate and its policy stance, but could up its growth projection by upto 20 basis points for 2023-24 (Apr-Mar), dealers said.
A sharp move in US Treasury yields and crude oil prices may also lend cues at opening.
The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.24-7.31%.
India Gilts: Remain up; market awaits 3-day MPC meet, due Wednesday
MUMBAI–1510 IST–Prices of government bonds remained up following a fall in US Treasury yields, dealers said. Traders avoided placing aggressive bets due to caution ahead of the Reserve Bank of India’s Monetary Policy Committee’s three-day meeting, starting Wednesday.
“Till the policy outcome, no one wants to place fresh bets here and that’s why the timid reaction is there in G-sec yields,” a dealer at a primary dealership said. “It is always the case, as MPC is lined up, levels on the 10-year benchmark may hover around 7.25-7.28%.”
Dealers speculated that state-owned banks were on the buying side as they step up their purchases of the 7.18%, 2033 paper at around 7.25-7.30% yield, levels considered lucrative, dealers said. In addition to state-owned banks, foreign banks were also speculated to be on the buying side.
While private banks and primary dealerships were speculated to be on the selling side, dealers said.
Amongst on-the-run papers, demand for short-term papers was as low due to tight liquidity in the banking system. On Sunday, liquidity in the banking system was in a surplus of 262.39 bln rupees, according to the RBI data.
Moreover, the market widely expects the domestic rate-setting panel to maintain the status quo on the repo rate and the policy stance, dealers said. In the last policy meeting, the panel kept the repo rate unchanged at 6.50%, while maintaining a ‘withdrawal of accomodation’ stance.
Apart from the Monetary Policy Committee’s meeting, the market may look at CPI for November as it expects it to be on the higher side, dealers said. The November print may go beyond the RBI’s target of 2-6% band for inflation. This may weigh on gilts prices going forward, dealers said.
Furthermore, the market may keep a watch for more clarity on open market operations-sales auction and comments from the RBI Governor Shaktikanta Das to take fresh cues on liquidity in the banking system, dealers said.
Meanwhile, the yield on the benchmark 10-year US Treasury note fell to 4.24%, as against 4.34% at the time of the Indian market close on Friday. On Friday, US Treasury yields fell following the US Federal Reserve Chair Jerome Powell’s comments that tight monetary policy has been successful in slowing the US economy down and the risks of over- and under-tightening are now fairly balanced. Thereby, hinting that the Fed may refrain from hiking rates.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 263.70 bln rupees compared with 213.35 bln rupees at 1430 IST on Friday.
For the rest of the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.24-7.30%. (Anupreksha Jain)
India Gilts: Remain up; state-owned banks buy at lucrative yld levels
MUMBAI–1252 IST–Prices of government bonds remained up, tracking a fall in US Treasury yields, dealers said. Traders did not place aggressive bets on caution ahead of the Reserve Bank of India’s Monetary Policy Committee’s three-day meeting, starting Wednesday.
“Currently, US Treasury yields are down and the market is waiting for the MPC meeting, so we will see range-bound trading till then,” a dealer at a state-owned bank said. “Traders who bought the 10-year paper at the auction are currently selling, and state-owned banks are buying.” On Friday, the government sold 130 bln rupees of the 7.18%, 2033 paper at the 300-bln-rupee auction.
State-owned banks have been net buyers for the last two days. Dealers speculated that state-owned banks were on the buying side as they don’t see the current lucrative yield levels on the 10-year paper reaching these levels again for a while.
Among the on-the-run gilts, dealers expect traders to pick up the 7.18%, 2037 paper more as the current spread between the 10-year benchmark and the 14-year paper is lucrative. Currently, the 14-year paper is trading at 7.39% yield, 12 basis points over the benchmark 10-year paper. Earlier in the day, the 7.18% 2037 paper rose as the state loan auction quantum was lower than the indicative calendar, dealers said.
The RBI said 10 states will raise 151.32 bln rupees through the sale of bonds on Tuesday. This is lower than the 263.50 bln rupees indicated in the borrowing calendar for Oct-Dec.
Moreover, the market widely expects the domestic rate-setting panel to maintain the status quo on the repo rate and the policy stance, dealers said. In the last policy meeting, the panel kept the repo rate unchanged at 6.50%, while maintaining a ‘withdrawal of accomodation’ stance.
Dealers said that the market would keep a watch for more clarity on open market operations sales auction and comments on the liquidity in the banking system by the RBI. In the October policy, RBI Governor Shaktikanta Das said the central bank was mulling Open Market Operation sale auctions to drain liquidity.
Meanwhile, the yield on the benchmark 10-year US Treasury note fell to 4.24%, as against 4.34% at the time of the Indian market close on Friday. On Friday, US Treasury yields fell following US Federal Reserve Chair Jerome Powell’s comments that tight monetary policy has been successful in slowing the US economy down and the risks of over- and under-tightening are now fairly balanced. Thereby, hinting that the Fed may refrain from hiking rates.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 199.20 bln rupees compared with 124.95 bln rupees at 1230 IST on Friday.
During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.24-7.30%. (M.C. Adhiinthran)
India Gilts: Up as US ylds dn; mkt cautious before 3-day MPC meet Wed
MUMBAI–0940 IST–Prices of government bonds rose tracking a fall in US Treasury yields, dealers said. Traders, however, refrained from placing aggressive bets due to caution ahead of the Reserve Bank of India’s Monetary Policy Committee meeting, starting Wednesday.
“The outlook for the US looks much better now. Moreover, the SDL (state government loan) auction is also positive, the longer end rallied because of that,” a dealer at a private bank said. “But the rally is not much, given there is policy this week.” Amongst on-the-run gilts, 7.18%, 2037 rose the most amid thin trade.
The RBI said 10 states will raise 151.32 bln rupees through the sale of bonds on Tuesday. This is lower than 263.50 bln rupees indicated in the borrowing calendar for Oct-Dec.
Meanwhile, the market widely expects the domestic rate-setting panel to maintain the status quo on the repo rate and the policy stance, dealers said. In the last policy meeting, the panel kept the repo rate unchanged at 6.50%, while maintaining a ‘withdrawal of accomodation’ stance.
However, as there were surprises on the liquidity front in the last two MPC meeting outcomes, traders worry that the central bank may not hike rates, but engineer a way to keep liquidity tight even going forward, dealers said.
In the October policy, the RBI Governor Shaktikanta Das said the central bank was mulling OMO sale auctions to drain liquidity. Meanwhile, in the August policy, the central bank imposed a 10% incremental cash reserve ratio of 10% on increase in the scheduled banks’ net demand and time liabilities between May 19 and Jul 28.
The short-term bonds remained weighed by tight liquidity conditions in the banking system, resulting in low volume at the short-end of the curve, dealers said. At the end of trade on Friday, liquidity in the banking system was in a surplus of 81.57 bln rupees. Trade volume remained concentrated in the benchmark 7.18%, 2033 paper in early trade.
The yield on the benchmark 10-year US Treasury note fell to 4.25% in early trade, as against 4.34% at the time of the Indian market close on Friday. On Friday, US Treasury yields fell following US Federal Reserve Chair Jerome Powell’s comments that tight monetary policy has been successful in slowing the US economy down and the risks of over- and under-tightening are now fairly balanced. Thereby hinting that the Fed may refrain from hiking rates.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 64.40 bln rupees compared with 61.55 bln rupees at 0930 IST on Friday.
During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.24-7.30%. (Nishat Anjum)
India Gilts: Seen up as US ylds dn; mkt eyes 3-day MPC meet due Wed
MUMBAI – Prices of government bonds are seen opening higher, tracking a fall in yield on the benchmark 10-year US Treasury note, dealers said. However, traders may refrain from placing aggressive bets ahead of the three-day Reserve Bank of India’s Monetary Policy Committee meeting, scheduled from Wednesday.
During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.25-7.32%, as against 7.29% on Friday.
The yield on the benchmark 10-year US Treasury note fell to 4.25% in Asian trade today, as against 4.34% at the time of the Indian market close on Friday. 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.
On Friday, US Treasury yields fell following US Federal Reserve Chair Jerome Powell’s comments that tight monetary policy has been successful in slowing the US economy down and the risks of over- and under-tightening are now fairly balanced. Thereby hinting that the Fed may refrain from hiking rates.
In the upcoming Federal Open Market Committee meeting scheduled on Dec 12-13, 97.7% of Fed fund futures traders expect the US rate-setting panel to maintain the status quo. Since March 2022, the Fed has hiked its policy rate by 525 basis points to the current 5.25-5.50% range.
Powell’s comments were backed by a weak reading of the purchasing managers’ index for November, which showed that US manufacturing remained subdued with factory employment declining further, as hiring slowed and layoffs increased.
The Institute for Supply Management said that its manufacturing purchasing managers’ index was unchanged at 46.7 in November, below the 47.6 estimate of economists polled by Reuters. It was the 13th straight month the PMI stayed below 50, indicating contraction.
On the domestic side, the market is expected to remain cautious ahead of the RBI’s Monetary Policy Meeting scheduled on Dec 6-8, dealers said. During the day, the volume is expected to remain muted as the market may anticipate the central bank’s next move, dealers said.
However, the quantum of the state government loan, scheduled to be auctioned on Tuesday, was lower than the indicative calendar for the December quarter, which may ease the worry over supply concerns, dealers said.
The Reserve Bank of India said 10 states will raise 151.32 bln rupees through the sale of bonds on Tuesday. This is lower than 263.50 bln rupees indicated in the borrowing calendar for Oct-Dec. (Siddhi Chauhan)
End
US$1 = 83.37 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Deepshikha Bhardwaj
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