Informist, Friday, Dec 29, 2023
By M.C. Adhiinthran
MUMBAI – Prices of government bonds ended higher today following the better-than-expected cut-off prices at the 330-bln-rupee bond auction, dealers said. In early trade, traders purchased gilts on speculation of petrol and diesel price cuts.
The 10-year benchmark 7.18%, 2033 bond closed at 100.02 rupees, or 7.18% yield, against 99.78 rupees, or 7.21%, on Thursday. The 10-year benchmark yield has fallen 15 basis points in 2023, with 4 bps of that coming in Oct-Dec.
Today, the government sold 70 bln rupees of the 7.37%, 2028 bond, 160 bln rupees of the 7.18%, 2033 bond, and 100 bln rupees of the 7.30%, 2053 bond.
“Throughout the day, there has been good buying in the market,” a dealer at a state-owned bank said. “While there have been plenty of reasons, there was valuation buying that took place throughout the day. The auction also saw high cut-offs on the 10-year (7.18, 2033 bond) because of that.”
Dealers speculated that the 10-year benchmark paper was largely picked up by state-owned banks and private banks, and traders also covered their short bets at the auction. A large corporate house, which had bought the 2033 bond at its previous auction as well, stocked up on the bond again in the secondary market immediately after the auction, and may have asked primary dealers to place bids on its behalf at the auction, dealers said.
The Reserve Bank of India set the cut-off price on the 7.18%, 2033 bond at 100.02 rupees, against expectations of 99.95 rupees, as polled by Informist. In the reported deals segment of the Negotiated Dealing System – Order Matching system, deals worth 41.35 bln rupees were transacted at the auction cut-off price in the T+1 segment, which may have the corporate house buying the security, dealers said.
At the auction, the five-year bond also saw good demand, dealers said. They speculated that mutual funds aggressively bought the paper, alongside traders, who purchased the bond due to expectations that the tight liquidity would ease heading into the new year on the back of the government’s month-end spending and the Reserve Bank of India’s variable rate term repos.
The 2053 paper saw the usual participants, insurers and pension funds pick up the paper, dealers said. Some speculated that a large state-owned insurer and a large pension fund would have picked up the paper.
Earlier in the day, prices of government bonds rose owing to persistent speculation of a petrol and diesel price cut, dealers said. A few media organisations, citing sources, reported that the petroleum ministry had proposed a rate cut of 4-8 rupees per ltr for petrol and diesel in the first half of 2024. Banks may have used the rumour as an excuse to buy bonds to improve the valuation of their overall portfolios at the quarter end, dealers said.
However, some sections of the market believed otherwise. “It is possible that the momentum earlier was due to people just buying due to the 7.18%, 2033 paper being auctioned for the last time,” a dealer said. “I cannot deny the other possibilities as well, but it must be that. Also, I think there is a possibility that the paper might see a few more auctions, but let’s wait and see.”
According to RBI data, the bond has an outstanding of 1.37 trln rupees, which will reach 1.53 trln rupees after the settlement of today’s auction on Monday. Typically, the government does not raise more than 1.5 trln rupees through the issuance of a single bond, dealers said.
Market sentiment was also buoyed by the unexpected rollover of the variable rate repo auction, dealers said. Some had said the roll-over would not take place as the Reserve Bank of India would lean on the government’s month-end spending to ease the liquidity deficit in the banking system. Today, banks took the full 1.25 trln rupees notified at the seven-day variable rate repo auction, at a cut-off rate of 6.73%.
According to data on the RBI’s Negotiated Dealing System-Order Matching platform, the turnover today was 456.35 bln rupees, up from 453.30 bln rupees on Thursday. There were no trades using the wholesale digital rupee pilot today, the same as the previous two days.
OUTLOOK
Gilts are not traded on Saturdays. On Monday, gilt prices may open lower as the state borrowing calendar for Jan-Mar was higher than expected, dealers said.
The indicative calendar for state loans, released after market hours today, showed 4.13 trln rupees in Jan-Mar, far higher than the expectations of 3.4-3.5 trln rupees. This may weigh on gilt prices as investors prefer spread instruments, even as traders said states may undershoot such a large borrowing amount.
A sharp move in US Treasury yields or crude oil prices may lend cues at opening.
The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.18-7.24% during the day.
India Gilts: Rise on firm investor demand at 330-bln-rupee auction
MUMBAI–1505 IST–Prices of government bonds remained up on the back of better-than-expected cutoff prices at the 330-bln-rupee weekly gilt auction, which saw aggressive bids from sections of the market, including state-owned banks, dealers said.
At the auction, the government sold 70 bln rupees of the 7.37%, 2028 bond, 160 bln rupees of the 7.18%, 2033 bond, and 100 bln rupees of the 7.30%, 2053 bond.
Dealers speculated that state-owned banks and private banks picked up the 10-year benchmark paper. Some dealers also said there was demand for the 10-year bond from a large corporate house, which had bought heavily at the previous debt sale for the 10-year paper on Dec 15 as well.
The demand for short-term paper at the auction was good as traders expected that the tight liquidity would ease heading into the new year on the back of the government’s month-end spending and the Reserve Bank of India’s variable rate term repos. Mutual funds aggressively bid for the 7.37%, 2028 paper after trimming their holdings over the last two days, dealers said.
However, gilts were not able to hold onto gains as traders had already filled up their portfolios anticipating a sharp rise in bond prices in January, dealers said.
“It looked like traders were not active for a few days, so they aggressively participated in the auction,” a dealer at a private bank said. “Also, mutual funds had redemptions two to three days ago, so they were continuously selling for the last two days, and holding back themselves so that they could buy at the auction.”
The RBI accepted 71 out of the total 213 bids in the 10-year paper and 20 out of the total 105 bids in the 5-year paper, dealers said. In the long-term paper, the RBI accepted 133 out of the total 356 bids, they said.
Traders covered their short bets at the auction, anticipating that this would be the last issuance for the 7.18%, 2033 bond at auction, dealers said. According to RBI data, the bond will have an outstanding of 1.53 trln rupees after the settlement of this auction on Monday. Typically, the government does not raise more than 1.5 trln rupees through the issuance of a single bond, dealers said.
Foreign banks missing from action did not affect the demand at the auction, dealers said. Typically, foreign traders scale back trading activity during this period as it is the time to close their books.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 283.15 bln rupees compared with 166.30 bln rupees at 1430 IST on Thursday.
For the rest of the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.17-7.24%. (Anupreksha Jain)
India Gilts: Remain up; market awaits 330-bln-rupee auction result
MUMBAI–1203 IST–Prices of government bonds remained higher, but the market remained divided on what led to the rise, dealers said. Traders now await the result of the 330-bln-rupee auction.
At the auction, the government offered 70 bln rupees of the 7.37%, 2028 bond, 160 bln rupees of the 7.18%, 2033 bond, and 100 bln rupees of the 7.30%, 2053 bond.
At the auction, mutual funds are expected to have bid heavily for the 2028 bond, dealers said. “Last time, banks did buy bonds with the money they received from the VRR (variable rate repo) auction,” a dealer at a state-owned bank said. “This time, they won’t do that as the quarter is ending, so they will need to show the money as is, and can’t afford to park it elsewhere.”
According to an Informist poll, the cutoff on the 7.37%, 2028 bond was seen at 101.15 rupees.
The 7.18%, 2033 bond is expected to have sailed through at the auction. It may have seen some aggressive demand from state-owned and private banks, dealers said. They expect good demand from these banks as the market sees yields falling in the Jan-Mar quarter due to an increase in foreign portfolio investment inflows. The cutoff on the paper was seen at 99.95 rupees.
The 7.30%, 2053 bond would have seen demand from insurers and pension funds, who are the usual participants, dealers said. The cutoff was seen at 98.45 rupees or 7.43% yield.
Meanwhile, the market was divided on the reason why bond prices rose. Some dealers said it was due to the speculation of price cuts in petrol and diesel prices. A few media organisations, citing sources, reported that the ministry of petroleum and natural gas proposed a rate cut of around 4-8 rupees per litre for petrol and diesel in the first half of 2024.
Another section of the market said the 7.18%, 2033 paper might be auctioned for the last time, which led to traders covering their short bets even before the auction, dealers said.
According to RBI data, the bond has an outstanding of 1.37 trln rupees. Typically, the government does not raise more than 1.5 trln rupees through the issuance of a single bond, dealers said.
A smaller section of the market also said the market was up owing to an unexpected rollover of the variable rate repo auction, dealers said. Some had said the roll-over would not take place as the Reserve Bank of India would lean on the government’s month-end spending to ease the liquidity deficit in the banking system.
At the end of trade on Thursday, the liquidity deficit in the banking system was 2.68 trln rupees, as against 2.62 trln rupees on Wednesday, according to RBI data.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 166.05 bln rupees compared with 101.80 bln rupees at 1230 IST on Thursday.
During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.17-7.24%. (M.C. Adhiinthran)
India Gilts: Up on speculation of price cuts in petrol, diesel
MUMBAI–101 IST–Prices of government bonds rose on speculation of a cut in petrol and diesel prices, dealers said. However, some said that the rise was due to traders covering short bets as they see global cues easing going forward.
“Traders are buying on the rumour that the government may cut petrol and diesel prices from next year onwards,” a dealer at a state-owned bank said. “The government would like to pass on the benefit of rate cuts in petrol as the next year is the election year and the government definitely do not want to take any chance.”
A few media organisation, citing sources, reported that the ministry of petroleum and natural gas proposed a rate cut of around 4-8 rupees per litre for petrol and diesel in the first half of 2024.
However, the rise in short-term papers was limited due to an ongoing liquidity deficit in the banking system, dealers said. At the end of trade on Thursday, the liquidity deficit in the banking system was 2.68 trln rupees, as against 2.62 trln rupees on Wednesday, according to the RBI data.
Meanwhile, the market now looks ahead of the 330-bln-rupee auction, due today, to gauge the investors’ appetite, dealers said.
At the auction, the government will sell 70 bln rupees of the 7.37%, 2028 bond, 160 bln rupees of the 7.18%, 2033 bond, and 100 bln rupees of the 7.30%, 2053 bond. Absence of foreign traders in the market may have an impact on the demand for the auction, dealers said.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 66.35 bln rupees compared with 23.85 bln rupees at 0930 IST on Thursday.
During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.18-7.24%. (Anupreksha Jain)
India Gilts: Seen steady on caution before 330-bln-rupee bond auction
MUMBAI – Prices of government bonds are seen opening steady as traders may refrain from placing aggressive bets on caution ahead of the 330-bln-rupee auction, dealers said. A slight uptick in US treasury yields may weigh on the bonds, dealers said.
The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.18-7.24% today, against 7.21% on Thursday.
Today, the government will sell 70 bln rupees of the 7.37%, 2028 bond, 160 bln rupees of the 7.18%, 2033 bond, and 100 bln rupees of the 7.30%, 2053 bond. Absence of foreign traders in the market may have an impact on the demand for the auction, dealers said.
During the day, the market will keep an eye on the indicative calendar of state loan securities for Jan-Mar, dealers said. The amount of borrowing by the states is expected to be around 3.4-3.5 trln rupees.
Traders believe the actual quantum of funds raised by the states would be lower than the indicative calendar, which is usually the case, dealers said. This may provide some relief to the market even if the indicative calendar has a higher quantum.
On the global front, the yield on the benchmark 10-year US Treasury note rose to 3.84% in Asian trade, as against 3.82% at the time of the Indian market close on Thursday. 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 Treasury yields rose as investors assessed the US jobless claim data which showed that the number of Americans filing initial claims for unemployment benefits rose last week, showing a sign of cooling off in the US labour market.
According to the data, new state unemployment benefit claims rose by 12,000 last week to 218,000. A Reuters poll showed economists expected an increase to 210,000 initial claims for the week ended Saturday. Continued claims rose 14,000, reaching 1.88 mln. Continued unemployment claims, a measure for hiring, increased since mid-September, indicating those already out of work may be having difficulties getting a job. (Siddhi Chauhan)
End
US$1 = 83.21 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Avishek Dutta
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