Informist, Monday, Feb 5, 2024
By Anupreksha Jain
MUMBAI – Government bond prices ended sharply lower, following a rise in US Treasury yields after fresh data pushed back expectation of a rate cut by the US Federal Reserve. Domestically, traders await the outcome of the Monetary Policy Committee meeting, due Thursday, with particular focus on the Reserve Bank of India’s guidance on its liquidity measures, dealers said.
The 10-year benchmark 7.18%, 2033 bond closed at 100.59 rupees, or 7.09% yield, compared with 100.85 rupees, or 7.06% yield, on Friday.
“Today, the movement is purely driven by the movement in US yields,” a dealer at a private bank said. “Otherwise, this much movement in the market is kind of unusual. Just ahead of the MPC, the market likes to remain cautious.”
The 10-year US benchmark rose to 4.08% from 3.88% at the time Indian markets closed on Friday. A rise in US 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 after government data released on Friday showed the world’s largest economy added many more jobs than expected in January. The strong jobs report indicated that the labour market was resilient, and that the US Fed did not need to cut rates in a hurry to support the economy. This nearly wiped out expectation of a March rate cut by the US Federal Open Market Committee.
The US non-farm payrolls data showed that the world’s largest economy added 353,000 jobs in January, almost double the estimate. The unemployment rate was lower than expected at 3.7% in January, and wages grew more than forecast at 0.7% on month.
According to the CMEGroup’s Fedwatch tool, Fed funds’ rate traders see only a 15.5% chance of 25-basis-point rate cut in March. This is in sharp contrast to 68.1% of traders expecting a March rate cut of at least 25-bps a month ago.
Back at home, dealers expect the MPC would likely cut policy repo rate only after the US, dousing rate cut expectation in India as well. In the last US Fed policy meeting, Chair Jerome Powell ruled out the possibility of rate cuts in March, saying they needed more confidence before the US Fed begins rate cuts.
Dealers said rate cuts in India might only begin from September, against earlier expectations of June, if the US Fed starts cutting rates in the middle of the calendar year. Meanwhile, the MPC is likely to hold the repo rate at 6.50% at its upcoming three-day meeting, starting Tuesday, for the sixth straight meeting.
The market is keenly looking forward to the outcome for clear guidance from the RBI on the liquidity front, after its periodic measures to both infuse and draw out liquidity through variable rate repo and reverse repo operations, respectively, dealers said. Between Dec 15 and Jan 30, the RBI conducted 11 variable rate repo auctions to help fund the liquidity deficit in the banking system, but has announced three variable rate reverse repo operations since Friday.
A section of the market expects a softer tone from the RBI Governor Shaktikanta Das on liquidity in the banking system after its liquidity infusions. However, some believe the recent variable rate reverse repo auctions are a sign that the central bank might not allow liquidity to be in any surplus. On Sunday, the liquidity deficit in the banking system was 1.10 trln rupees, as against a record high of 3.46 trln rupees on Jan 24.
“The RBI wants to control liquidity in the banking system by permutation and combinations of VRR (variable rate repo) and VRRR (variable rate reverse repo) auctions. Definitely, it does not want overnight rates to fall anywhere below the repo rate,” a dealer at a state-owned bank said. “So, a clear roadmap on how the RBI is planning to manage the liquidity means a great deal to the market. All eyes are on the liquidity measures that the governor might come up with in the policy meeting’s outcome.”
Dealers speculated that mutual funds were buying the short-term papers as they were sitting on cash surplus owing to inflows they received for systematic investment plans. In addition, foreign investors bought the 7.37%, 2028 paper and 7.18%, 2033 paper, dealers said. Moreover, state-owned banks were also speculated to be on the buying side along with private banks as levels became lucrative after the sharp fall in prices.
Bonds with maturities above 30 years had only minor losses as insurance companies bought the bonds from the secondary market, as the supply of gilts for the current financial year will come to an end on Feb 16, dealers said. Besides, the market may take further cues from the US January Services Purchasing Managers’ Index, due at 2015 IST.
According to data on the RBI’s Negotiated Dealing System-Order Matching platform, the turnover today was 468.95 bln rupees, lower than 970.35 bln rupees seen on Friday. Two trades amounting 100 mln rupees were carried out using the wholesale digital rupee pilot today, as against no deals struck on Friday.
OUTLOOK
On Tuesday, gilts may open steady as traders may refrain from placing aggressive bets as a caution ahead of the three-day Monetary Policy Committee meeting, dealers said. Any sharp movement in US Treasury yields or crude oil prices may also lend cues at the open.
The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.06-7.12% during the day.
India Gilts: Remain down as US yields up; MPC meet starting Tue eyed
MUMBAI–1536 IST–Prices of government bonds remained down, tracking a surge in US Treasury yields, dealers said. With the Monetary Policy Committee’s meeting starting Tuesday, the market will look for cues on whether the central bank is comfortable with the tight liquidity in the banking system.
On Sunday, the liquidity deficit in the banking system was at 1.10 trln rupees, according to RBI data.
“There was good buying momentum in the morning today,” a dealer at a state-owned bank said. “However, later in the day, with US yields rising further and the VRRR (variable rate reverse repo auction), it sent some people to the selling side. Private banks would be on the selling side, maybe even booking a profit, as they would not want to hold a position ahead of the MPC meeting.” At the four-day variable rate reverse repo auction today, banks parked 187.50 bln rupees at 6.49% rate with the central bank.
Bonds with maturities above 30 years were up as insurance companies bought the bonds from the secondary market, as the supply of gilts for the current financial year will come to an end on Feb 16, dealers said. State-owned banks, foreign banks, and mutual funds would likely be buying bonds in tenures up to 14 years ahead of the MPC’s outcome on Thursday, they said.
A section of the market participants expect a softer tone from RBI Governor Shaktikanta Das on liquidity in the banking system. However, some believe the recent variable rate reverse repo auctions are a sign that the central bank might not be comfortable easing the liquidity.
The yield on the 10-year benchmark US Treasury note rose to 4.09% from 3.88% at the time of Indian markets close on Friday. US yields surged after US non-farm payrolls data from the Labour Department on Friday showed that the world’s largest economy added 353,000 jobs in January, far higher than the estimate of 180,000 in a Reuters poll. Comments from the US Federal Reserve Chair Jerome Powell on Sunday to CBS News where he reiterated that expecting a rate cut in March is too soon, also aided US yields.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 407.15 bln rupees, as against 809.60 bln rupees at 1530 IST on Friday.
For the rest of the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.05-7.11%. (M.C. Adhiinthran)
India Gilts: Dn as US ylds rise; liquidity measures eyed at MPC meet
MUMBAI–1346 IST–Prices of government bonds fell, following a surge in US Treasury yields, dealers said. The market kept a close watch for the three-day meeting of the Reserve Bank of India’s Monetary Policy Committee, scheduled to start on Tuesday, dealers said.
“The market is moving towards buying levels. So some buying is coming from mutual funds and foreign banks,” a dealer at a state-owned bank said. “As far MPC is concerned, we do not expect any change in stance. But the RBI should give clear guidance on liquidity management.” Currently, the policy stance is ‘withdrawal of accommodation’.
Just a day ahead of the domestic rate-setting panel’s meeting, the market keenly eyes guidance on the liquidity front. On Sunday, the liquidity deficit in the banking system was at 1.10 trln rupees, according to RBI data. The market widely expects the central bank to control the liquidity deficit by conducting variable repo rate and variable rate reverse repo tenders, dealers said. From December, the central bank has conducted 11 repo rate tenders, as per data from the RBI.
The losses were, however, limited as traders stepped up purchases at yield levels considered lucrative, dealers said. Some buying interest in the benchmark 7.18%, 2033 bond was speculated from the side of foreign banks. Mutual funds also stepped up purchases of gilts as they sit on inflows from systematic investment plans, dealers speculated. Private banks were on the selling side.
As per data from Clearing Corp of India, foreign banks have continued to pick bonds ahead of the inclusion of Indian bonds in global bond indices. 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.
The yield on the 10-year benchmark US Treasury note rose to 4.08% from 3.88% at the time of Indian markets close on Friday. US yields surged after US non-farm payrolls data from the Labour Department on Friday showed that the world’s largest economy added 353,000 jobs in January, far higher than the estimate of 180,000 in a Reuters poll.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 321.55 bln rupees, as against 555.90 bln rupees at 1330 IST on Friday.
During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.05-7.11%. (Siddhi Chauhan)
India Gilts: Sharply down as US ylds surge; focus on MPC meet Tue-Thu
MUMBAI–0949 IST–Prices of government bonds fell sharply as US Treasury yields surged, dealers said. Traders look forward to the three-day meeting of the Reserve Bank of India’s Monetary Policy Committee, scheduled to start on Tuesday.
“US yields have been the reason for the sharply lower opening,” a dealer at a private bank said. “Maybe some private banks who bought well on Friday would trim their holdings ahead of MPC (meeting).” Private banks were the top net buyers on Friday, data from the Clearing Corp of India Ltd showed.
Dealers said even as the expectations of a rate cut by the US Federal Reserve in March faded, the domestic market rate cut expectations still stand for October.
According to CME group’s Fedwatch tool, 84.5% of Fed Fund Futures traders expect the key interest rate to remain at 5.25-5.50% in the March meeting, with 58.1% of them expecting a 25 basis-point rate cut in May.
In the domestic rate-setting panel meeting, dealers said that they expect the repo rate to remain unchanged at 6.50%. However, going forward, they expect an easing in the banking system’s liquidity. At the end of trade on Friday, the liquidity deficit in the banking system was at 1.42 trln rupees, as against 2.22 trln rupees on Thursday, data from the RBI showed.
Meanwhile, the yield on the 10-year benchmark US Treasury note rose to 4.07% from 3.88% at the time of Indian markets close on Friday. US yields surged after the US non-farm payrolls data from the Labour Department on Friday showed that the world’s largest economy added 353,000 jobs in January, far higher than estimates of 180,000 as shown by a Reuters poll.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 129.20 bln rupees, as against 99.30 bln rupees at 0930 IST on Friday.
During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.05-7.11%. (M.C. Adhiinthran)
India Gilts: Seen opening lower tracking rise in US yields
MUMBAI – Prices of government bonds are seen opening lower due to a rise in US Treasury yields, as traders assessed higher-than-expected job growth in January, dealers said. Traders also await the three-day meeting of the Reserve Bank of India’s Monetary Policy Committee, scheduled to start on Tuesday, dealers said. The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.04-7.09% today, against 7.06% on Friday.
The yield on the 10-year US Treasury note surged on Friday after data showed higher-than-expected job growth in January, dampening hopes of a cut in interest rates by the US Federal Reserve in the near future. The 10-year US benchmark rose to 4.07% from 3.88% at the time Indian markets closed on Friday. A rise in US yields narrows the interest rate differential between the safe-haven asset and emerging market debt, making the latter less appealing to foreign investors.
The US non-farm payrolls data from the Labour Department on Friday showed that the world’s largest economy added 353,000 jobs in January, almost double the estimates. The unemployment rate was lower than expected, and wages grew more than forecast. Economists polled by Reuters had forecast payrolls increasing 180,000 in January. The unemployment rate for the month in the US was at 3.7%, against Bloomberg’s estimate of 3.8%. A stronger-than-expected jobs report suggested that the US Federal Reserve may not cut interest rates as soon as investors had hoped.
Further, on Sunday, US Federal Reserve Chair Jerome Powell discussed inflation risks, expected rate cuts, and the banking system with CBS News. In the discussion, he reiterated that expecting a rate cut in March is too soon. He also added that the economy could move towards a rate cut sooner if the labour market weakness or inflation “really persuasively” came down. According to the CME Group’s FedWatch tool, 84.5% of Fed Fund Futures traders expect the key interest rate to remain at 5.25-5.50%, as against 52.3% before the Federal Open Market Committee’s meeting outcome early Thursday. (Siddhi Chauhan)
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Deepshikha Bhardwaj
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