Informist, Wednesday, Dec 6, 2023
By Aaryan Khanna
MUMBAI – Most government bond prices closed off highs because traders avoided aggressive bets as the three-day Monetary Policy Committee meeting began today. An intraday rise in US Treasury yields also weighed on gilt prices towards the close of the trade, dealers said.
The 10-year benchmark 7.18%, 2033 bond closed at 99.49 rupees, or 7.25% yield, against 99.46 rupees, or 7.26% yield, on Tuesday.
“Bonds likely gave up gains just because of the MPC outcome that is around the corner,” a fund manager at a mutual fund said. “But overall, people do expect a more dovish policy than last time, which is why bonds have gained some traction over the last two days.”
The market widely expects the MPC to maintain status quo on the repo rate and the policy stance, dealers said. At the last policy meeting, the panel kept the repo rate unchanged at 6.50%, while maintaining a “withdrawal of accomodation” stance.
Dealers said the market would keep a watch for clarity on open market auction sales and comments on liquidity in the banking system by the RBI. In the October policy, RBI Governor Shaktikanta Das had said the central bank was considering open market operation sale auctions to drain liquidity, which have failed to materialise in the interim.
Any auctions for open market bonds sales would have been the first since November 2017.
Surprises by the RBI at the past two policy reviews on the liquidity front have kept traders cautious, even as they are near-unanimous in counting on a non-event on Friday, dealers said.
“You can ask me the impact of a rate cut on the market, but speculation on how each individual participant will read into a comment, that is useless, so there is no point in so much enthusiasm about it,” the fund manager said.
On the global front, the yield on the benchmark 10-year US Treasury note fell to as low as 4.18% during Indian market hours today from 4.23% at the end of Indian market hours on Tuesday. 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 as data on fresh job openings for October showed signs that the US labour market was cooling. The Labor Department’s monthly Job Openings and Labor Turnover Survey, or JOLTS report, showed that new job openings, a measure of labour demand, dropped in October to the lowest level since early 2021. These fell by 617,000 to 8.733 mln as on the last day of October.
However, the 10-year US benchmark yield inched up to 7.20% by the end of Indian market hours, which prompted traders from primary dealerships and private banks to trim their holdings before the close of trade. Foreign banks have been net buyers since Nov 28, according to data from the Clearing Corp of India Ltd, and likely continued that streak today, dealers speculated.
With short-term bonds out of favour immediately before the rate decision, long-term bonds were the big gainers earlier in the day, with the 14-year benchmark 7.18%, 2037 bond the best performing on-the-run gilt.
Investors preferred stocking up on the 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 state-bond auction was the catalyst for the 14-year,” a dealer at a private bank said. “Since there was a lot of (state bond) supply in that tenure over the past few weeks, this one was a breather and people are looking at the spread trade.”
The indicative calendar for state borrowing for Oct-Dec showed states would borrow 264 bln rupees this week, against which states borrowed just 151.32 bln rupees.
Meanwhile, the government today sought Parliament’s approval to spend a net additional 584 bln rupees in the current financial year ending Mar 31, according to papers tabled in the Lok Sabha. The figure was lower than some traders expected, and was not a worry as the economy has been registering a good tax mop-up, dealers said.
Last week, data released by the Controller General of Accounts showed that the central government’s tax collections in Apr-Oct rose 14% on year to 18.345 trln rupees, driven by robust direct collections.
According to data on the RBI’s Negotiated Dealing System-Order Matching platform, the turnover was 360.05 bln rupees, compared with 356.55 bln rupees on Tuesday. There were no trades today using the wholesale digital rupee pilot for the second straight day.
OUTLOOK
On Thursday, gilt prices are seen opening steady as traders may avoid aggressive bets ahead of the outcome of the three-day Monetary Policy Committee meeting Friday, dealers said.
All 25 respondents in an Informist poll of economists, treasury heads, and analysts said they expect the rate-setting panel to keep the repo rate unchanged at 6.50%, and maintain the “withdrawal of accommodation” stance for the fifth consecutive time.
Even though higher food prices pose an upside risk to inflation and growth projections may be increased for 2023-24 (Apr-Mar), there was some hope that the tone of the policy statement would not indicate any further policy tightening.
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 7.22-7.30%.
India Gilts: Up as US yields fall more; mkt eyes MPC meet outcome Fri
MUMBAI–1517 IST–Prices of government bonds rose as the yield on the benchmark 10-year US Treasury note fell further during the day, dealers said. However, the gains were limited as traders avoided placing aggressive bets ahead of the outcome of the Reserve bank of India’s Monetary Policy Committee meeting, due on Friday.
State-owned banks were speculated to be on the selling side. Private banks and primary dealerships were also speculated to be on the selling side, dealers said. Foreign banks were expected to be on the buying side.
“The market is solely reacting to the downward trend in US yields,” a dealer at a primary dealership said. “The upward movement in the gilts prices was limited because people are cautious about taking fresh positions ahead of the MPC meeting outcome.”
The government today sought Parliament’s approval to spend a net additional 584 bln rupees in the current financial year ending Mar 31, according to papers tabled in the Lok Sabha. “The market is not troubled by the additional spending as the amount was largely along expected lines and the market does not see any additional borrowing this year,” a dealer at a state-owned bank said.
The market is also not worried about the additional spending as the economy has been registering a good tax mop-up, dealers said. Last week, data released by the Controller General of Accounts showed that the central government’s tax collections in Apr-Oct rose 14% on year to 18.345 trln rupees, driven by robust direct collections.
Last month, the finance ministry said the government’s direct tax collection, net of refunds, during Apr 1-Nov 9 was 10.6 trln rupees, up 21.8% compared with the year-ago period.
On the policy front, the market expects the MPC meeting to be a non-event, but it will observe the tone of RBI Governor Shaktikanta Das’s speech. When it comes to the repo rate and the policy stance, the market expects the panel to keep both unchanged, dealers said. Currently, the repo rate is at 6.50% and the RBI has maintained a ‘withdrawal of accomodation’ stance.
The yield on the benchmark 10-year US Treasury note fell to 4.16% from 4.23% at the close of the Indian market on Tuesday. US Treasury yields fell as data on fresh job openings for October suggested the US labour market was cooling.
According to data on the RBI’s Negotiated Dealing System-Order Matching platform, the marketwide turnover was 267.65 bln rupees at 1517 IST compared with 264.10 bln rupees at 1530 IST on Tuesday.
For the rest of the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.23-7.27%. (Anupreksha Jain)
India Gilts: Remain up; market eyes RBI’s MPC meet outcome Fri
MUMBAI–1253 IST–Prices of government bonds remained up, tracking an overnight fall in US Treasury yields, dealers said. However, traders refrained from placing aggressive bets ahead of the outcome of a meeting of the Reserve Bank of India’s Monetary Policy Committee on Friday.
Volumes in the market were low, as traders were cautious ahead of the domestic rate-setting panel’s decision. The thin volumes remained concentrated in the longer-term papers, dealers said.
“Everybody wants to go light right now,” a dealer at a state-owned bank said. “However, they won’t go too heavy on either side, as they can’t afford sharp movements on either side.
“We might see the range-bound trading break if US yields fall below 4.18-4.19% level. Even then, it won’t be too much as MPC outcome is pending,” he added.
Traders keenly await the central bank’s commentary on the liquidity front, dealers said. A section of the market expects the RBI to take a softer tone at the meeting, and may postpone exploring open market operations sales until January as liquidity is tight and has largely remained in a deficit.
Most dealers expect the voting pattern on the policy stance to remain the same as the last time–a 5:1 voting with external member Jayanth Varma not agreeing with the current “withdrawal of accomodation” stance. Currently, the repo rate stands at 6.50%, and the market expects the panel to keep the rates unchanged at this meeting.
With the central bank increasing the risk weights for loans to non-banking financial companies, some dealers expect the unsecured money in the market to reduce drastically, as the cost of borrowing for credit card and personal loans would increase, impacting liquidity negatively, dealers said.
However, another section of the market expects the RBI to reiterate that it may explore open market operations sales auctions to manage liquidity. This comes against the backdrop of expected inflows by foreign portfolio investors ahead of India’s inclusion in the JPMorgan Emerging Market index in June, as well as expectations of government expenditure before the General Elections in 2024.
Meanwhile, the yield on the benchmark 10-year US Treasury note fell to 4.19% from 4.23% at the close of the Indian market on Tuesday. US Treasury yields fell as data on fresh job openings for October showed signs that the US labour market was cooling.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 163.15 bln rupees at 1254 IST compared with 146.55 bln rupees at 1230 IST on Tuesday.
During 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: Up tracking fall in US ylds; mkt eyes MPC meet outcome Fri
MUMBAI–0946 IST–Prices of government bonds rose, tracking a fall in US Treasury yields, dealers said. However, traders refrained from placing aggressive bets on caution ahead of the outcome, due Friday, of the three-day meeting of the Reserve Bank of India’s Monetary Policy Committee.
Volume also remained low in early trade as traders remained on the sidelines ahead of the domestic rate-setting panel’s decision. The rise in short-term bonds was limited due to prevailing tight liquidity conditions in the banking system, dealers said. At the end of trade on Tuesday, liquidity in the banking system was in a surplus of 115.59 bln rupees.
“MPC would largely be a non-event. My concern is the commentary about the OMO (open market operations sale auction),” a dealer at a state-owned bank said. “If the market gets a hint that OMOs are not happening, then you may see a rally of around 10 basis points.”
Traders also keenly await the central bank’s commentary on the liquidity front, dealers said. A section of the market expects the Reserve Bank of India to reiterate that it may explore OMO sales auctions to manage liquidity. This comes against the backdrop of expected foreign portfolio investment inflows ahead of India’s inclusion in the JPMorgan Emerging Market index in June, as well as expectations of government expenditure prior to the general elections in 2024.
The market widely expects the domestic rate-setting panel to keep the policy repo rate and policy stance unchanged for the fifth consecutive time at the outcome of its meeting on Friday, even though higher food prices pose an upside risk to inflation. Currently, the repo rate stands at 6.50%, while the policy stance is “withdrawal of accommodation”.
Meanwhile, the yield on the benchmark 10-year US Treasury note fell to 4.19% in early trade from 4.23% at the end of Indian market hours on Tuesday. US Treasury yields fell as data on fresh job openings for October showed signs that the US labour market was cooling.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 38.30 bln rupees compared with 37.00 bln rupees at 0930 IST on Tuesday.
During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.23-7.28%. (Nishat Anjum)
India Gilts: Seen up as US ylds fall; mkt eyes MPC meet outcome Fri
MUMBAI – Prices of government bonds are seen opening higher due to an overnight fall in US Treasury yields, dealers said. However, the gains may be limited in early trade as traders may avoid placing aggressive bets due to caution ahead of the outcome of the three-day meeting of the Reserve Bank of India’s Monetary Policy Committee, due on Friday.
The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.23-7.29% today, against 7.26% on Tuesday.
The market is unanimous that the domestic rate-setting panel will keep the policy repo rate and policy stance unchanged for a fifth consecutive time at the outcome of its meeting on Friday, even though higher food prices pose an upside risk to inflation.
All 25 respondents in an Informist poll of economists, treasury heads, and analysts said they expect the rate-setting panel to keep the repo rate unchanged at 6.50%, and maintain the ‘withdrawal of accommodation’ stance at the end of its three-day meeting.
The market expects the decision on the repo rate to be unanimous, but sees external member Jayanth Varma refraining from voting on the stance. In the October policy, Varma had expressed reservations on the policy stance.
Traders will also take cues from RBI Governor Shaktikanta Das’s statement, which may give insight into the rate trajectory going forward, dealers said. After the recently released GDP data for Jul-Sep, and an expected uptick in inflation for November, the market keenly awaits the central bank’s commentary on economic health.
According to preliminary estimates, India’s November inflation orint is seen inching towards 6%, dealers said. Meanwhile, data released last week showed India’s GDP grew 7.6% on year in Jul-Sep, firmly beating the estimate of 6.8% in an Informist poll of 21 economists.
On the global front, the yield on the benchmark 10-year US Treasury note fell to 4.20% in Asian trade today from 4.23% at the end of Indian market hours on Tuesday. 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 as data on fresh job openings for October showed signs that the US labour market was cooling. The Labor Department’s monthly Job Openings and Labor Turnover Survey, or JOLTS report, showed that new job openings, a measure of labour demand, dropped in October to the lowest level since early 2021. They fell by 617,000 to 8.733 mln as on the last day of October.
This strengthened bets that the US Federal Reserve is done hiking policy rates, and will begin to cut rates as soon as in March. Expectations of a US rate cut of at least 25 basis points in March are about 55%, according to CME’s FedWatch Tool, up from about 35% a week ago. (Nishat Anjum)
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Deepshikha Bhardwaj
For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.
Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.
Informist Media Tel +91 (22) 6985-4000
Send comments to [email protected]
© Informist Media Pvt. Ltd. 2023. All rights reserved.
Source: Cogencis
