Informist, Thursday, Feb 1, 2024
By Nishat Anjum
MUMBAI – Government bond yields plunged today as the market rejoiced after the government announced a sharply lower-than-anticipated gross borrowing number in its Interim Budget 2024-25 (Apr-Mar), dealers said. The trade volume in the secondary market crossed over 1 trln rupees.
The 10-year benchmark 7.18%, 2033 bond closed at 100.83 rupees, or 7.06% yield, compared with 100.24 rupees, or 7.14% yield, on Wednesday. Today, bond closed at the lowest level since Jul 18, and touched 7.04%, the lowest since Jun 19, during the day. The trade volume in the benchmark paper was the highest in almost 4 years.
The gross market borrowing in the next fiscal is seen at 14.13 trln rupees, against 15.20 trln rupees in an Informist poll, and down from the record 15.43-trln-rupee borrowing programme that ends on Feb 16.
“The market woke up happy today, expecting positive news from the Budget and that’s what happened,” a dealer at a private bank said. “Even if the number was slightly higher, the market would not have worried. But this (the gross borrowing number) was cherry on the cake.”
On a net basis, the government will sell bonds worth 11.75 trln rupees, taking into account repayments of 2.38 trln rupees. Unlike in the financial year ending March, the government is not scheduled to repay goods-and-services-tax-related borrowing next year.
In 2023-24, the government had to redeem 781 bln rupees worth of bonds that had been issued to compensate state governments for shortfall in goods and services tax compensation cess. A total of 1.9 trln rupees worth of such bonds are scheduled to mature in 2025-26 and 2026-27. However, in a footnote to the Budget document, the government said that the gilt repayment for 2024-25 is net of recovery of 1.24 trln rupees from the GST compensation fund.
The gross borrowing number is sharply below market estimates as the Interim Budget’s projection of bond repayments, at 2.38 trln rupees, is sharply lower than the bond maturities of 3.61 trln rupees scheduled for 2024-25 as per the latest data released by the Reserve Bank of India. The section of the Budget document laying out details of market loans due for discharge next year also shows gilt redemptions worth 3.61 trln rupees.
The reduction in the fiscal deficit target also gave the gilt market a boost, dealers said. Even as the market widely expected the gross borrowing figure to be lower than that of 2023-24, not many were expecting a lower revised estimate of the fiscal deficit. The government pegged its fiscal deficit at 5.1% of GDP in 2024-25, below market expectations of 5.3% of GDP. Moreover, the fiscal deficit target for the current financial year was also cut by 10 basis points to 5.8% of GDP in the revised estimate.
Towards the end of the day, the market digested the Interim Budget and a few traders shifted their focus to the Reserve Bank of India’s Monetary Policy Committee meeting, scheduled next week, dealers said. “The trading range for the benchmark 10-year is likely to be 7.00-7.12% for now. Then we will have to look ahead to monetary policy for further cues,” a dealer at another private bank said. “The market is divided, but I think it’s too early to change any stance. These VRR (variable rate repo) are purely for liquidity management.”
In the upcoming Monetary Policy Committee meeting from Feb 6-8, a section of the market expects the domestic rate-setting panel to change the stance to “neutral” from the current “withdrawal of accommodation”.
Meanwhile, today the gains were limited on the short-term bonds as the tight liquidity weighed on them, dealers said. At the end of trade on Wednesday, the liquidity deficit in the banking system was 2.29 trln rupees, according to the RBI data.
In early trade, government bond prices rose, tracking an overnight fall in US Treasury yields, dealers said. The yield on the 10-year benchmark US Treasury note fell to 3.95%, from 4.03% at the time of Indian markets close on Wednesday. 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.
US yields fell on comments from the Treasury department on Wednesday when it said it plans to continue the gradual increase of coupon auction sizes through April, beyond which no further increases are expected for the next several quarters.
“The US Department of the Treasury is offering $121 bln of treasury securities to refund approximately $105.1 bln of privately held Treasury notes maturing on February 15, 2024,” Assistant Secretary for Financial Markets Josh Frost said in the quarterly refunding statement for the US Treasury.
Investors also digested the outcome of the US Federal Open Market Committee meeting, where the target rate was kept unchanged at 5.25-5.50% for the fourth consecutive meeting. The policy statement also showed that the central bank is not in a rush to cut rates, and it will only reduce rates once it gains more confidence that “elevated” inflation is moving towards its 2% target at a time of “solid” economic growth and strong job gains. Post the FOMC meet outcome, 64.5% of Fed Fund Futures traders expect rates to remain unchanged in March, according to CME Group’s FedWatch tool.
According to data on the RBI’s Negotiated Dealing System-Order Matching platform, the turnover today was 1.14 trln rupees, sharply higher from 429.90 bln rupees on Wednesday. Two trades amounting to 500 mln rupees were carried out using the wholesale digital rupee pilot today, the same as the last two days.
OUTLOOK
On Friday, the gilt market may open with an upward bias as it sees reduced supply for the financial year starting April, dealers said. However, traders may avoid aggressive bets on caution ahead of the 390-bln-rupee gilt auction, scheduled later in the day.
The RBI said the government will sell 120 bln rupees of the 7.32%, 2030 bond, 100 bln rupees of the 7.18%, 2037 bond, 120 bln rupees of the 7.46%, 2073 bond, and 50 bln rupees of the 7.37%, 2054 sovereign green bond.
Any sharp movement in US Treasury yields or crude oil prices may also lend cues at open.
The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.00-7.10% during the day.
India Gilts: Surge; 10-yr benchmark bond yield lowest since Jun 19
MUMBAI–1505 IST–The yield on the 10-year benchmark 7.18%, 2033 bond was the lowest since Jun 19 after the government pegged gross market borrowing for 2024-25 (Apr-Mar) far lower than the market expected, dealers said. The gross market borrowing in the next fiscal was seen at 14.13 trln rupees, against 15.20 trln rupees in an Informist poll, and down from the record 15.43-trln-rupee borrowing programme that ends on Feb 16.
“Now that the private investments are happening at scale, the lower borrowings by the central government will facilitate larger availability of credit for the private sector,” Finance Minister Nirmala Sitaraman said while presenting the Interim Budget for 2024-25 (Apr-Mar) in the Lok Sabha today.
On a net basis, the government will sell bonds worth 11.75 trln rupees, taking into account repayments of 2.38 trln rupees. Unlike in the financial year ending March, the government is not scheduled to repay goods-and-services-tax-related borrowing next year.
In 2023-24, the government had to redeem 781 bln rupees worth of bonds that had been issued to compensate state governments for shortfall in goods and services tax compensation cess. A total of 1.9 trln rupees worth of such bonds are scheduled to mature in 2025-26 and 2026-27. However, in a footnote to the Budget document, the government said that the gilt repayment for 2024-25 is net of recovery of 1.24 trln rupees from the GST compensation fund.
The gross borrowing number is sharply below market estimates as the Interim Budget’s projection of bond repayments, at 2.38 trln rupees, is sharply lower than the bond maturities of 3.61 trln rupees scheduled for 2024-25 as per the latest data released by the Reserve Bank of India. The section of the Budget document laying out details of market loans due for discharge next year also shows gilt redemptions worth 3.61 trln rupees.
Bonds maturing in 10 years and above surged on the day, with the government’s recent borrowing programmes concentrated in long-term securities, dealers said. On the other hand, gains in short-term bonds were limited as these are more rate-sensitive, rather than being predicated on demand and supply.
“Everyone who bought yesterday (Wednesday), especially the longer-tenure bonds, would be making a good buck right now,” a dealer at a state-owned bank said. “Today, both buyers and sellers are happy,”
Another reason for positivity was that the government pegged its fiscal deficit at 5.1% of GDP in 2024-25, below market expectations of 5.3% of GDP. Moreover, the fiscal deficit target for the current financial year was also cut by 10 basis points to 5.8% of GDP in the revised estimate.
Dealers speculated that some state-owned banks had been booking profit through the day, but may have flipped to the buying side after the Budget presentation. Foreign and private banks were likely booking some profits on prior buys, while buys from foreign portfolio investors poured in, dealers said.
Primary dealerships covered their short bets aggressively despite the 390-bln-rupee auction on Friday, which is expected to sail through comfortably. Amidst the positivity, dealers expect the yield on the 10-year benchmark bond to fall further. They see the yield falling to 7.02%, after which traders may curb their enthusiasm and await further cues from the monetary policy review next week.
Moreover, the yield on the 10-year benchmark US Treasury note fell to 3.94% from 4.03% at the time of Indian markets close on Wednesday, which also aided gilt prices, dealers said. US yields fell on comments from the Treasury department on Wednesday, stating that it plans to continue the gradual increase of coupon auction sizes through April, beyond which no further increases are expected for the next several quarters.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 942.50 bln rupees, as against 295.00 bln rupees at 1430 IST on Wednesday.
During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.02-7.10%. (M.C. Adhiinthran)
India Gilts: Sharply up on lower than expected FY25 mkt borrowing
MUMBAI–1215 IST–Prices of government bonds surged sharply as Finance Minister Nirmala Sitharaman in the Interim Budget announced a lower-than-expected gross borrowing programme for 2024-25 (Apr-Mar), dealers said. Furthermore, a lower-than-expected fiscal deficit target for the upcoming financial year also supported prices.
While presenting the Interim Budget, Sitharaman said the government’s gross market borrowings for 2024-25 (Apr-Mar) is pegged at 14.13 trln rupees, lower than expectations of 15.20 trln rupees polled by Informist. On a net basis, the government pegged market borrowing at 11.75 trln rupees. The net supply for 2024-25 was seen at 11.65 trln rupees.
Sitharaman said the fiscal deficit is seen at 5.1% of GDP for the financial year starting Apr 1, against the market’s expectation of 5.3%. In addition, the government’s commitment to achieve the 4.5% target of fiscal deficit by 2025-26 also lifted investor sentiment, dealers said. “Everything came positive in the Budget. The market was not expecting such a bullish reaction,” a dealer at a private bank said. “Borrowings were lower than expected and this is the biggest boost for the market.” Additionally, the capital expenditure pegged at 3.4% of GDP for the next financial year, against expectations of an increase by 5-7% from the current fiscal year, also supported bond prices, dealers said.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 532.35 bln rupees, as against 213.40 bln rupees at 1230 IST on Wednesday. During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.10-7.19%. (Anupreksha Jain)
India Gilts: Rise as US yields down; caution before Interim Budget
MUMBAI–0940 IST–Prices of government bonds rose tracking a fall in US Treasury yields, dealers said. Gilt prices may remain in a thin range until the Interim Budget for 2024-25 (Apr-Mar), to be presented at 1100 IST by Finance Minister Nirmala Sitharaman.
“The opening rise was purely driven by US yields,” a dealer at a state-owned bank said. “Ahead of the budget, no one would trade aggressively, and those who want to take positions would have taken with most having closed their positions yesterday (Wednesday) only. We might not see new short bets today.”
The Interim Budget is expected to provide some positive signs for the gilt market today, dealers said. They expect the government to cut back on its gross bond issuances after three successive years of record high borrowing programmes. 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 issuances are expected to be at 11.65 trln rupees, as against 11.81 trln rupees in the current fiscal year, an Informist poll with 20 economists, fund managers, and treasury heads showed. 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 fiscal deficit is expected to be at 5.3% of the GDP, as against 5.9% in the current fiscal year.
The capital expenditure is expected to increase by 5-7% from the current fiscal year, dealers said. The market would keep an eye out for these specifics in today’s Interim Budget, dealers said.
Meanwhile, the yield on the 10-year benchmark US Treasury note fell to 3.94% from 4.03% at the time of Indian markets close on Wednesday. US yields fell on comments from the Treasury department on Wednesday, stating that it plans to continue the gradual increase of coupon auction sizes through April, beyond which no further increases are expected for the next several quarters.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 92.65 bln rupees, as against 59.20 bln rupees at 0930 IST on Wednesday. During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.10-7.19%. (M.C. Adhiinthran)
India Gilts: Seen up as US ylds dn; caution ahead of Interim Budget
MUMBAI – Prices of government bonds are seen opening a tad higher tracking the fall in US Treasury yields, dealers said. However, post opening, prices are expected to remain in range as traders may refrain from placing further aggressive bets due to caution ahead of the Interim Budget 2024-25 (Apr-Mar), to be presented today.
The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.10-7.19% today, against 7.14% on Wednesday.
The Interim Budget which is to be presented at 1100 IST is expected to provide some positive cues 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 if the borrowing figures are lower-than-expected. 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 fiscal deficit for 2024-25 is pegged at 5.3% of the GDP, as against 5.9% in the current fiscal year. The capital expenditure is expected to increase by 5-7% from the current fiscal year, dealers said. The market would keep an eye out for these specifics in today’s Interim Budget, dealers said.
Meanwhile, the yield on the 10-year benchmark US Treasury note fell to 3.95%, from 4.03% at the time of Indian markets close on Wednesday. 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.
US yields fell on comments from the Treasury department on Wednesday, stating that it plans to continue the gradual increase of coupon auction sizes through April, beyond which no further increases are expected for the next several quarters.
“The US Department of the Treasury is offering $121 bln of treasury securities to refund approximately $105.1 bln of privately-held Treasury notes maturing on February 15, 2024,” Assistant Secretary for Financial Markets Josh Frost said in the quarterly refunding statement for the US Treasury.
Investors also digested the outcome of the US Federal Open Market Committee meeting, where the target rate was kept unchanged at 5.25-5.50% for the fourth consecutive meeting. The policy statement also showed that the central bank is not in a rush to cut rates, and it will only reduce rates once it gains more confidence that “elevated” inflation is moving towards its 2% target at a time of “solid” economic growth and strong job gains.
“In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” it said in its policy statement. “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.”
According to CME Group’s FedWatch tool, 63.5% of Fed Fund Futures traders expect the rates to remain unchanged in March as well. (M.C. Adhiinthran)
End
US$1 = 82.97 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Deepshikha Bhardwaj
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