Informist, Wednesday, Jan 10, 2024
By Siddhi Chauhan
MUMBAI – Prices of government bonds ended higher for the third straight day as the yield on the 10-year benchmark US Treasury note fell below the key 4% mark. However, the gains were limited as traders sold the 10-year benchmark 7.18%, 2033 bond at a profit, dealers said. The 10-year benchmark bond closed at 99.99 rupees, or 7.18% yield, against 99.93 rupees, or 7.19%, on Tuesday.
The yield on the 10-year benchmark US Treasury note fell to 3.99% at the end of Indian market hours, against 4.05% 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.
Dealers speculated that foreign banks bought the 10-year benchmark paper as well as the 7.18%, 2037 paper. According to data from the Clearing Corp of India, foreign banks have been top net buyers since Monday.
“Foreign banks are buying in both the 10-year and 14-year segments, as they see US yields falling more,” a dealer at a state-owned bank said. “As a result, they want to invest in our bonds. They expect that US inflation may come a bit lower, thereby increasing the chances of rate cuts.”
Long-term bonds offer better capital gains for investors as every basis point of fall in yield translates into a bigger jump in prices when the bond’s maturity is higher. Bond yields fall when interest rates are cut.
However, gains were limited as primary dealerships placed short bets on the 10-year paper ahead of the 330-bln-rupee auction scheduled for Friday. 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 at the auction.
The gains in the 10-year paper were also capped by state-owned banks selling their bonds at a profit, dealers said.
With no significant cues on the global and domestic fronts, traders have shifted their attention towards the CPI print for December, both domestic and in the US. While India’s CPI print is not expected to change the domestic interest rate view, the US CPI print is a crucial trigger for the trajectory of interest rates in the world’s largest economy.
US CPI data for December is due on Thursday, while the domestic CPI data is scheduled for release at 1730 IST on Friday. According to a poll by Informist, India’s annual inflation rate based on CPI likely rose to a four-month high of 5.9% in December from 5.6% in November, mainly because of the statistical effect of a low base.
The 14-year benchmark 7.18%, 2037 paper led the gains amongst on-the-run gilts as foreign banks bought bonds on behalf of insurers for forward-rate agreements, dealers said.
“The prices of the (14-year bond) closed on the higher end as foreign banks bought the paper,” a dealer at another state-owned bank said. “Also, it seems there was demand from FRA (bond forward rate agreements) and insurance companies, as they generally go for the long-term papers after a quarter ends.”
The 7.32%, 2030 bond has become a trading paper after a succession of seven-year bonds that were mopped up largely by state-owned banks for their asset-liability management. Traders are now holding the 2030 gilt to sell to foreign portfolio investors, whose purchases in the market were lacklustre today, dealers said.
According to data on the RBI’s Negotiated Dealing System-Order Matching platform, the turnover today was 479.20 bln rupees, up from 401.90 bln rupees on Tuesday. Two trades were carried out using the wholesale digital rupee pilot today, adding up to 100 mln rupees, the same as on Tuesday.
OUTLOOK
On Thursday, gilt prices are seen opening steady on caution ahead of US CPI data, due after market hours, dealers said.
According to a Dow Jones poll, US CPI inflation for December is expected to rise to 3.2% on year against 3.1% in November. However, core CPI inflation for December may slow to 3.8% on year, against 4.0% the previous month.
Any sharp movement in US Treasury yields or crude oil prices may lend cues at the opening.
The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.15-7.22% during the day.
India Gilts: Rise as US ylds fall intraday; profit-booking caps gains
MUMBAI–1530 IST–Prices of government bonds rose slightly, tracking the fall in US Treasury yields, dealers said. However, the gain was limited as traders speculated some state-owned banks booked profits and trimmed their holdings of the 7.18%, 2033 gilt.
The yield on the 10-year benchmark US Treasury note was at 3.99%, against 4.05% at the close of Indian market hours on Tuesday. US yields inched down from 4.02% at the time of Indian market opening today.
“While its true that our market is rising due to the US yields, we won’t be fully moving in tandem if US yields considerably fall below the 4.00% mark,” a dealer at a primary dealership said. “With big data for both the US and India lined up, I don’t think our yield (on the 7.18%, 2033 bond) would go below 7.15%.”
Dealers speculated that foreign banks were on the buying side, while primary dealerships were placing short bets on the 2033 bond as it is up for auction on Friday.
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 at Friday’s auction.
As the market remains devoid of cues, traders keenly await the US CPI data for December that is due on Thursday, and domestic CPI data that is due on Friday. India’s CPI inflation print for December is expected to be in the 5.5-6.0% band, against 5.55% in November, dealers said.
While the domestic CPI print may not influence India’s rate view too much, the US CPI print is a crucial trigger for the trajectory of interest rates in the world’s largest economy, dealers said.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 386.70 bln rupees, as against 334.85 bln rupees at 1530 IST on Monday.
For the rest of the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.16-7.22%. (M.C. Adhiinthran)
India Gilts: In thin band due to lack of firm domestic, global cues
MUMBAI–1223 IST–Prices of government bonds were in a thin band as traders avoided placing aggressive bets as the market lacked prominent domestic and global cues, dealers said. A slight fall in US Treasury yields kept the prices of bonds afloat, they added.
“There are no major factors for the market to move, as it is now waiting for both US and India’s CPI data for some cues,” a dealer at a private bank said. “US yields are also at similar levels, only 1-basis point movement is seen, so no cues from the global front as well.”
As the market remains devoid of cues, traders keenly await the domestic CPI data that is due on Friday. CPI inflation for December is expected to be in the 5.5-6.0% band, against 5.55% in November, dealers said.
Despite a print likely well above the Reserve Bank of India’s 4% inflation target, it will likely be overlooked in determining the near-term rate view as it has been discounted by the market, dealers said. On the other hand, an unexpected reading, either higher or lower, could be reflected in the comments made by Monetary Policy Committee members at the February policy review, as this is the last inflation data before the meeting.
Foreign banks have been the top net buyers since Monday, according to data on Clearing Corp of India, and were speculated on the buying side again, though volumes were lower, dealers said.
However, the gains in the 10-year paper were limited as primary dealers placed short bets on the paper as it is up for the 330-bln-rupee gilt auction this week, dealers said. Traders generally cover their short bets in the auction.
The government will offer 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 on Friday.
On the global front, the yield on the 10-year benchmark US Treasury note was at 4.02%, against 4.05% at the close of Indian market hours on Tuesday. US yields fell on caution ahead of the US CPI data for December, which is scheduled for Thursday, and producer price index data for December, due on Friday.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 199.75 bln rupees, as against 236.80 bln rupees at 1130 IST on Monday.
During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.16-7.22%. (Siddhi Chauhan)
India Gilts: Little changed on lack of firm domestic, global cues
MUMBAI–0936 IST–Prices of government bonds were little changed as traders refrained from placing aggressive bets due to the absence of firm domestic and global cues, dealers said.
“A steady opening was expected,” a dealer at a private bank said. “With the market already having reacted to the Bloomberg (index inclusion proposal) news, there were no firm cues for today. We might see a slight replication of buying and selling patterns from yesterday (Tuesday).”
On Monday, Bloomberg proposed to include Indian government bonds in its Emerging Market Local Currency Index. India’s fully accessible route bonds will be fully capped at 10% weight within the Bloomberg Emerging Market 10% Country Capped Index, according to Bloomberg’s proposal.
However, there was a lack of public information on the funds tracking the index. According to dealers, even if the proposal is accepted by Bloomberg’s clients, traders expect only around $2 bln-$3 bln worth of inflows over the five-month period starting September this year.
Traders will also closely watch the movement of US Treasury yields for cues. A slight overnight fall kept gilt prices afloat, dealers said. They expect foreign banks to buy bonds on behalf of foreign institutional investors and primary dealerships, and state-owned banks to sell gilts in order to book profits.
Foreign banks have been the top net buyers for the last two days, while primary dealerships have been the top net sellers for the same period. State-owned banks have also been net sellers since Monday, according to data from Clearing Corp of India.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 51.60 bln rupees, as against 94.25 bln rupees at 0930 IST on Monday.
During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.16-7.22%. (M.C. Adhiinthran)
India Gilts: Seen steady on lack of significant domestic, global cues
Prices of government bonds are seen opening steady due to lack of firm domestic and global cues, dealers said. An overnight fall in US Treasury yields may push bond prices slightly higher.
The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.16-7.22% today, against 7.19% on Tuesday.
The yield on the 10-year benchmark US Treasury note was at 4.02%, against 4.05% at the close 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.
Dealers expect the market to track US yields and other offshore triggers today, though the impact at opening may be limited. US yields inched lower ahead of US CPI data on Thursday and producer price index data on Friday.
Traders expect foreign banks to continue their buying streak in today’s session, dealers said. Foreign banks have been the top net buyers for the last two days, according to data from Clearing Corp of India.
Backed by foreign portfolio investment, foreign banks have stepped up their purchases of gilts on the view that monetary policy tightness will ease in both the US and India, dealers said. Moreover, some offshore investors were front-running inflows on account of India’s bonds being added to JP Morgan emerging market index suite from June.
Primary dealers may continue placing short bets on the bonds at the 330-bln-rupee weekly gilt auction, which includes the 7.18%, 2033 bond, dealers said. This decision came as a surprise to the market, as its outstanding had crossed 1.5 trln rupees, after which the government has earlier not issued a 10-year paper.
Dealers said the next major domestic cue for the market would be the CPI data on Friday. CPI inflation for December is expected to be in the 5.5-6.0% band, against 5.55% in November, dealers said. (M.C. Adhiinthran)
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Rajeev Pai
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