Informist, Wednesday, Jan 31, 2024
By Siddhi Chauhan
MUMBAI – Prices of government bonds ended higher on the back of an overnight fall in US Treasury yields, dealers said. Traders await the US Federal Open Market Committee’s two-day meeting outcome and the Interim Budget for 2024-25 (Apr-Mar), due Thursday.
The 10-year benchmark 7.18%, 2033 bond closed at 100.24 rupees, or 7.14% yield, compared with 100.15 rupees, or 7.16% yield, on Tuesday.
The yield on the 10-year benchmark US Treasury note fell to 4.03% at the time Indian markets closed, from 4.07% on Tuesday. The benchmark 10-year US Treasury yield fell as the US Treasury on Monday said it would borrow $760 bln from the market in Jan-Mar, far lower than its earlier projection of $816 bln. A fall in US yields widens the interest rate differential between the safe-haven asset and emerging market debt, making the latter more appealing to foreign investors.
“The market is overall positive. Foreign banks are buying on the expectation of India’s (inclusion on global bond indices) and then there is rate cut expectation in the US in March,” a dealer at a private bank said. “Traders are taking positions ahead of the budget and FOMC (Federal Open Market Committee meeting outcome).”
Foreign banks have continued to buy bonds maturing up to 14 years, likely on behalf of foreign portfolio investors, dealers said. JP Morgan will add Indian gilts to its Global Bond Index – Emerging Markets starting June, while Bloomberg has proposed to add bonds under the fully-accessible route to its emerging market indices starting September.
Meanwhile, the Budget is expected to provide a positive boost to the market, dealers said. They expect that after three successive years of record high borrowing programmes, the government may cut back on its gross bond issuances. According to a median of 23 analysts’ estimates in an Informist poll, the Centre is likely to announce gross borrowing of 15.20 trln rupees through dated securities for 2024-25, against its borrowing of 15.43 trln rupees in 2023-24.
Along with foreign portfolio investors, the 7.18%, 2033 bond was picked up by some private banks for their asset liability management, dealers said. However, gains on the 10-year benchmark were limited as state-owned banks and some private banks sold their holdings at a profit as they considered levels attractive, dealers said. As per data available on the Clearing Corp of India, state-owned banks have been net sellers in the secondary market for five straight trading sessions.
Meanwhile, the gains were led by the 7.18%, 2037 bond as traders preferred long-term bonds, which offer better capital gains when compared to shorter-tenure bonds when yields fall, dealers said. With this notion in mind, mutual funds along with state-owned banks and foreign banks picked the 14-year paper, dealers said. Moreover, with the borrowing programme – which has been concentrated in bonds maturing in more than 10 years – expected to shrink, long-term bonds may also have favourable supply-demand dynamics.
Moreover, dealers speculated that foreign banks bought the 7.30%, 2053 bond and the 7.25%, 2063 bond for forward rate agreements with the insurance companies. Apart from that, provident funds also stocked up in the secondary market in both the bonds as the gilt supply for the current fiscal year is ending on Feb 16, dealers said.
“Nobody is going in very heavy, but the economy has a perfect balance right now,” a dealer at a life insurance company said. “It’s very difficult for the Interim Budget to fumble anything, there is a general positivity that nothing negative for bonds is going to come out, for the first time in a while.”
Other than foreign banks, there was a lack of interest in short-term bonds, with trade volumes in bonds maturing up to seven years muted, dealers said. Gains in these bonds were also capped due to the prevailing liquidity conditions. At the end of trade on Tuesday, the liquidity deficit was at 2.74 trln rupees, against 2.68 trln rupees on Monday, according to data from the Reserve Bank of India.
This paucity of liquidity also pushed up the Treasury bill cutoffs at the weekly auction today, with short-term securities out of favour. The RBI set the cutoff rate on the 364-day T-bill at auction today at 7.15%, higher than the yield on the 10-year benchmark 7.18%, 2033 bond.
According to data on the RBI’s Negotiated Dealing System-Order Matching platform, the turnover today was 431.60 bln rupees, down from 550.25 bln rupees on Monday. Two trades amounting to 500 mln rupees were carried out using the wholesale digital rupee pilot today, the same as on Tuesday.
OUTLOOK
On Thursday, bond prices may open steady on caution ahead of the Interim Budget presentation at 1100 IST, dealers said. The US FOMC outcome at 0030 IST may lend cues to the market at the open.
The Budget announcement and borrowing details for 2024-25 are being closely watched. Traders expect a fall in gross borrowing on year, which may push up bond prices during the day, dealers said.
Meanwhile, the US rate-setting panel is widely expected to stand pat on its policy rates this week, before beginning to cut interest rates either in March or May. Any sharp movement in US Treasury yields or crude oil prices may also lend cues at the opening.
The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.05-7.25% during the day.
India Gilts: Remain up; tight liquidity caps gains in short-term bonds
MUMBAI–1528 IST–Prices of government bonds remained up as US yields fell overnight, dealers said. Gains were capped on the short-term bonds owing to the ongoing liquidity deficit in the banking system. At the end of trade on Tuesday, the liquidity deficit was at 2.74 trln rupees, against 2.68 trln rupees on Monday, according to data from the Reserve Bank of India.
“Everyone is stocking up before the major events,” a dealer at a private bank said, referring to the outcome of the US Federal Open Market Committee meeting and the presentation of the Interim Budget for 2024-25 (Apr-Mar) in India. “PSUs (state-owned banks) might be selling though, as they did go long in the last two auctions.”
Private banks and foreign banks bought the 10-year bond, while mutual funds might be buying the 14-year bond, dealers speculated. They added that foreign banks bought bonds with maturities up to 5 years for their foreign portfolio investors.
Dealers also speculated that investors bought the 7.30%, 2053 bond and the 7.25%, 2063 bond for forward rate agreements with insurance companies. The papers are the fourth and third most traded in the secondary market, data from the RBI’s Negotiated Dealing System-Order Matching platform showed, which is typically not the case.
With the gilt supply for the current fiscal year ending on Feb 16, only three more auctions are lined up, leading to many participants, especially insurance companies, buying before the supply ends, dealers said.
The Interim Budget is expected to provide a positive boost to the market, dealers said. They expect that after three successive years of record high borrowing programmes, the government may cut back on its gross bond issuances. According to a median of 23 analysts’ estimates in an Informist poll, the Centre is likely to announce gross borrowing of 15.20 trln rupees through dated securities for 2024-25, against its borrowing of 15.43 trln rupees in 2023-24.
The net supply for 2024-25 is seen at 11.65 trln rupees, against 11.81 trln rupees in the current financial year. Dealers said the yield on the 10-year benchmark bond might fall to 7.11-7.12% levels after the Budget.
Meanwhile, the yield on the 10-year benchmark US Treasury note fell to 4.02% from 4.07% at the time the Indian markets closed on Tuesday. The yield fell as the Treasury on Monday said $760 bln is the expected borrowing for Jan-Mar, far lower than the estimate of $816 bln.
According to data on the RBI’s Negotiated Dealing System-Order Matching platform, the market-wide turnover was 341.50 bln rupees, against 418.95 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 7.12-7.18%. (M.C. Adhiinthran)
India Gilts: Remain up as US yields fall; focus on FOMC meet, Budget Thu
MUMBAI–1313 IST–Prices of government bonds remained up, tracking an overnight fall in US Treasury yields, dealers said. The market keenly awaits the outcome of the US Federal Open Market Committee’s meeting and the Interim Budget for 2024-25 (Apr-Mar) due Thursday.
Dealers speculated that foreign banks picked 7.18%, 2033 and 7.18%, 2037 bonds ahead of India’s inclusion in global bond indices later this year. They have been buying on behalf of foreign portfolio investors, dealers said.
Foreign banks have been top net buyers on all of January’s trading days except one, data from the Clearing Corp of India Ltd showed. They have been buying on behalf of foreign portfolio investors ahead of India’s inclusion in global bond indices later this year, dealers said.
“The market is positive right now, US yields have softened, the RBI (Reserve Bank of India) is currently pumping liquidity in the system”, a dealer at a primary dealership said. “Traders know that they might not see these levels again, this has what led them to buy.”
As a result, along with foreign banks, mutual funds and some private banks have also started piling up the benchmark 10-year bond, dealers said.
Meanwhile, some other private banks along with state-owned banks sold the 10-year benchmark bond at a profit, dealers said. Both private banks and state-owned banks did so on the previous trading day as well, dealers said. As per the data available on the Clearing Corp of India website, state-owned banks have been on the selling side for five consecutive trading sessions.
Moreover, buying interest was seen in the longer tenure papers from insurance companies and pension funds, dealers said. The 7.25%, 2063 bond and 7.30%, 2053 bond, which generally do not have much trade volume in the secondary market, were the third and fourth traded bonds, respectively.
Meanwhile, the yield on the 10-year benchmark US Treasury note fell to 4.03% from 4.07% at the time the Indian markets closed on Tuesday. The benchmark 10-year US Treasury yield fell on Tuesday as the Treasury on Monday said $760 bln is the expected borrowing for Jan-Mar, far lower than estimates of $816 bln.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 239.85 bln rupees, as against 248.25 bln rupees at 1230 IST on Tuesday.
During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.12-7.18%. (Siddhi Chauhan)
India Gilts: Up as US yields fall; FOMC meet outcome, Budget Thu eyed
MUMBAI–0935 IST–Prices of government bonds were higher, tracking an overnight fall in US Treasury yields, dealers said. The market awaits the outcome of the US Federal Open Market Committee’s meeting and the Interim Budget for 2024-25 (Apr-Mar) on Thursday.
“The higher opening was due to US yields, post which, it should be in a thin band,” a dealer at a private bank said. “I don’t think they (US yields) will fall significantly today, as everyone is cautious ahead of big events. We would see some duration papers being picked up, but that should be it.”
Dealers speculated that foreign banks might step up purchases later in the day, while primary dealerships and state-owned banks may sell bonds. Foreign banks have been top net buyers on all of January’s trading days except one, data from the Clearing Corp of India Ltd showed. They have been buying on behalf of foreign portfolio investors ahead of India’s inclusion in global bond indices later this year, dealers said.
With the market expecting lower gross borrowings in 2024-25, as compared with the current financial year, the market expects it to be a major positive cue due to a slight ease in supply of dated securities, dealers said. According to a median of 23 analysts’ estimates in an Informist poll, the Centre is likely to announce gross borrowing of 15.20 trln rupees through dated securities for 2024-25, against its borrowing of 15.43 trln rupees in 2023-24.
The net supply for the same tenure is seen at 11.65 trln rupees, against 11.81 trln rupees in the current financial year. Moreover, gilt supply for the current fiscal year is also coming to a close, with only three more auctions scheduled till the borrowing calendar for Oct-Mar ends on Feb 16.
The yield on the 10-year benchmark US Treasury note fell to 4.03% from 4.07% at the time the Indian markets closed on Monday. The benchmark 10-year US Treasury yield fell on Tuesday as the Treasury on Monday said $760 bln is the expected borrowing for Jan-Mar, far lower than estimates of $816 bln.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 64.45 bln rupees, as against 68.70 bln rupees at 0930 IST on Tuesday.
During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.14-7.19%. (M.C. Adhiinthran)
India Gilts: Seen opening tad higher as US yields fall overnight
MUMBAI – Prices of government bonds are seen opening a tad higher, tracking an overnight fall in US Treasury yields, dealers said. Traders may refrain from placing aggressive bets on caution ahead of the outcome of the US Federal Open Market Committee’s meeting and the Interim Budget for 2024-25 (Apr-Mar) on Thursday.
The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.14-7.19% today, against 7.16% on Tuesday.
Dealers expect foreign banks to be the buyers for the day. Foreign banks have been top net buyers on all of January’s trading days except one, data from the Clearing Corp of India Ltd showed. Foreign banks have been buying on behalf of foreign portfolio investors ahead of India’s inclusion in global bond indices later this year, dealers said.
JP Morgan will add Indian gilts to its Global Bond Index – Emerging Markets starting June, while Bloomberg has proposed to add bonds under the fully-accessible route to its emerging market indices starting September. According to Clearing Corp of India data, foreign holdings of index-eligible gilts increased by 506.91 bln rupees after Sep 21, the date on which JP Morgan announced its decision.
Meanwhile, the Budget is expected to provide a positive boost to the market, dealers said. They expect that after three successive years of record high borrowing programmes, the government may cut back on its gross bond issuances. According to a median of 23 analysts’ estimates in an Informist poll, the Centre is likely to announce gross borrowing of 15.20 trln rupees through dated securities for 2024-25, against its borrowing of 15.43 trln rupees in 2023-24.
The net supply for the same tenure is seen at 11.65 trln rupees, against 11.81 trln rupees in the current financial year. Moreover, gilt supply for the current fiscal year is also coming to a close, with only three more auctions scheduled till the borrowing calendar for Oct-Mar ends on Feb 16.
The yield on the 10-year benchmark US Treasury note fell to 4.03% from 4.07% at the time the Indian markets closed on Monday. A fall in US yields widens the interest rate differential between the safe-haven asset and emerging market debt, making the latter more appealing to foreign investors.
The benchmark 10-year US Treasury yield fell on Tuesday as the treasury on Monday said $760 bln is the expected borrowing for Jan-Mar, far lower than estimates of $816 bln. Investors also assessed the US job openings data, which unexpectedly rose in December and data for the prior month was revised higher, the Labor Department said Tuesday. Job openings were up 101,000 to 9.02 mln in the last month of 2023, the Labor Department’s Bureau of Labor Statistics said in its monthly Job Openings and Labor Turnover Survey.
November’s data was revised higher to show 8.93 mln unfilled positions instead of the previously reported 8.79 mln. A Reuters poll had forecast 8.75 mln job openings in November.
According to CME Group’s FedWatch tool, 97.9% of Fed Fund Futures traders expect the target rate to remain unchanged at 5.25-5.50% in this meeting, and only 42.8% of them expect a 25 basis-point rate cut in March, with 56.3% of them expecting it to remain unchanged even then. (M.C. Adhiinthran)
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Vidhi Verma
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