Informist, Thursday, Feb 8, 2024
By M.C. Adhiinthran
MUMBAI – Prices of government bonds ended lower as traders trimmed their holdings after the Reserve Bank of India’s Monetary Policy Committee today left the policy stance unchanged, dealers said. An intraday rise in US Treasury yields also weighed on bonds.
The 10-year benchmark 7.18%, 2033 bond closed at 100.69 rupees, or 7.08% yield, compared with 100.74 rupees, or 7.07% yield on Wednesday.
The Monetary Policy Committee kept the policy repo rate unchanged at 6.50% and retained its stance of withdrawal of accommodation to ensure inflation progressively aligns with the target, while supporting growth. Five members voted to keep the repo rate and stance unchanged, while external member Jayanth Varma voted for a 25-basis-point cut in the policy rate and a shift in stance to ‘neutral’.
Ahead of the policy review outcome, some participants purchased gilts expecting a change in policy stance, dealers said. However, they rushed to sell after the rate-setting panel kept the stance unchanged.
The market was expecting fresh cues on the RBI’s thinking on liquidity conditions in the banking system. However, the central bank today failed to provide any, dealers said. RBI Governor Shaktikanta Das said the central bank will continue to rely on variable rate repo and variable rate reverse repo auctions to manage the liquidity in the banking system on a durable basis.
“Let me reiterate that our policy stance is in terms of interest rate, which is the principal tool of monetary policy in the current framework,” the governor said in his statement. “Our stance of withdrawal of accommodation should be seen in the context of incomplete transmission and inflation ruling above the target of 4% and our efforts to bring it back to the target on a durable basis. So as far as liquidity conditions are concerned, these are being driven by exogenous factors, which are likely to correct in the foreseeable future, aided by our market operations.”
With the policy review outcome failing to lend fresh guidance to the market, rate cut expectations remain unchanged, dealers said. Market participants are expecting a rate cut in the second half of the next financial year starting April.
“The market was expecting some sort of guidance on liquidity but did not get anything new,” a dealer at a private bank said. “It (MPC meeting outcome) was a non-event. Besides the knee-jerk reaction, the MPC meeting did not give anything of great significance to the market. People have already moved on and started shorting papers for tomorrow’s (Friday’s) 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 at the auction. Dealers said that some traders placed short bets on the 10-year benchmark bond ahead of the auction. The 7.18%, 2037 bond saw strong buying from foreign banks in the first half of the day. Foreign banks have been the top net buyers in the last two trading sessions, data from the Clearing Corp of India Ltd showed.
However, traders placed short bets on the benchmark 14-year bond towards the latter half as the spread between the 7.18%, 2037 bond and the 7.18%, 2033 bond narrowed, dealers said. The spread between the two narrowed to 3 basis points.
Amongst on-the-run bonds, short-term bonds fell more than the rest as market participants sold the bonds after the RBI failed to provide fresh cues in regard to the liquidity conditions in the banking system.
The 7.25%, 2053 bond and 7.30%, 2063 bond saw strong demand from insurance companies and pension funds throughout the day, dealers said. Towards the last hour of the trading session, the price of the 7.25%, 2053 bond fell as traders placed short bets on that bond as well, as it is up for auction on Friday, dealers said.
Banks also picked up past 10-year benchmark bonds which are eligible under the fully accessible route. Trade volumes in the usually inactive 6.54%, 2032 bond picked up as banks bought the bond for their investment books at yield levels considered lucrative, dealers said. The paper offered 2-3 basis points higher returns than the 10-year benchmark bond. “The paper has a 3.5 rupee discount, while all other bonds in the market are trading at a premium,” a dealer at another private-bank said. “This is why we are seeing quite a bit of FII (Foreign Institutional Investments) flows for that paper.”
Meanwhile, the yield on the 10-year benchmark US Treasury note rose to 4.13% from the day’s low of 4.09%. 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 yields rose as the market assessed recent comments by US Federal Reserve officials which suggested that data is being eyed for any decision regarding the interest rate trajectory. On Wednesday, Fed Governor Adriana Kugler said that even as inflation was easing, the job was not done yet. More data is needed to provide evidence that inflation is going down in the world’s largest economy.
According to data on the RBI’s Negotiated Dealing System-Order Matching platform, the turnover today was 665.30 bln rupees, up from 449.30 bln rupees on Wednesday. Two trades totalling 100 mln rupees were carried out using the wholesale digital rupee pilot today, as against no trades on Wednesday.
OUTLOOK
On Friday, gilts may open steady as traders may refrain from placing aggressive bets ahead of the 330-bln-rupee bond auction, scheduled at 1030-1130 IST, 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 7.05-7.11% during the day.
India Gilts: Most bonds down as US yields rise; longer-term bonds up
MUMBAI–1544 IST–Prices of most government bonds were down, tracking an intraday rise in US Treasury yields, dealers said. However, bonds with tenures of 14 years and above were up as investors stocked up these papers, dealers said.
The Reserve Bank of India’s Monetary Policy Committee today kept the policy stance unchanged, leading to some traders trimming their bond holdings, dealers said. The committee kept the policy repo rate unchanged at 6.50% and retained its stance of withdrawal of accommodation to ensure inflation progressively aligns with the target, while supporting growth.
“Post the policy, the market saw good buying levels which they haven’t seen in a while,” a dealer at a state-owned bank said. “PSUs (state-owned banks) have been buying (the 7.18%, 2033 bond) at 7.08-7.09% levels. Some sold when the market touched 7.06%.”
Dealers speculated that traders placed short bets on the 10-year benchmark bond ahead of Friday’s bond 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 at the auction.
Dealers speculated that foreign banks bought the 7.18%, 2037 bond, while insurance companies and pension funds bought the 7.30%, 2053 bond and 7.25%, 2063 bond. Foreign banks have been the top net buyers in the last two trading sessions, data from the Clearing Corp of India Ltd showed. “Spreads between the benchmark 10-year and 14-year are too narrow…. should see a correction soon. Some might even short the 14-year later for this,” the dealer said.
Meanwhile, the yield on the 10-year benchmark US Treasury note rose to 4.11% from the day’s low of 4.09%. US yields rose as the market awaited fresh key economic data from the US after recent comments by US Federal Reserve officials suggested that data is being eyed for any decision regarding the interest rate trajectory. On Wednesday, President of the Federal Reserve Bank of Boston Susan Collins said that if the US economy meets expectations, the Federal Reserve will likely start cutting rates later this year.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 604.25 bln rupees, as against 359.50 bln rupees at 1530 IST on Wednesday.
For the rest of the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.04-7.10%. (M.C. Adhiinthran)
India Gilts: Dn as US ylds rise intraday; policy stance unch weighs
MUMBAI–1406 IST–Prices of government bonds fell following an intraday rise in US Treasury yields. Moreover, traders trimmed their bond holdings across all segments as the Reserve Bank of India’s Monetary Policy Committee kept the policy stance unchanged, dealers said.
The Monetary Policy Committee today kept the policy repo rate unchanged at 6.50% and decided to maintain its stance of “withdrawal of accommodation” to ensure inflation progressively aligns with the target, while supporting growth.
“People who were long initially as they thought that the policy committee might change its stance to “neutral” are very disappointed. So, they are currently selling right now,” a dealer at a private bank said. “Earlier, the movement in the market was purely because of the policy outcome, but now the rise in US yields also weighed on gilts prices.”
US yields rose intraday as the market awaited fresh key economic data from the US after recent comments by US Federal Reserve officials suggested that data is being eyed for any decision regarding the interest rate trajectory.
On Wednesday, President of the Federal Reserve Bank of Boston Susan Collins said that if the US economy meets her expectations, the Federal Reserve will likely start cutting rates later this year.
The yield on the 10-year benchmark US Treasury note rose to 4.12% from 4.09% at the time Indian markets opened today. 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.
Back at home, the outcome of the RBI’s MPC meeting to retaining the policy stance of “withdrawal of accomodation” weighed on the market sentiment, dealers said. However, they added that the positives, such as lower-than-expected gross borrowing for the next financial year beginning April and a strong GDP growth forecast for 2024-25 (Apr-Mar) are likely to prevent further fall in gilt prices.
The RBI projected the country’s GDP growth in the next financial year at 7.0%. The governor in the policy outcome said that the domestic rate-setting panel saw a voting pattern of 5-1 majority to keep the repo rate unchanged at 6.50%.
State-owned banks bought the 10-year benchmark 7.18%, 2033 bond as yield levels on the paper were considered lucrative to add bond to their portfolios, dealers said. The long-term 7.25%, 2063 paper was picked by the usual participants such as insurers and provident funds, dealers speculated.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 522.80 bln rupees, as against 328.00 bln rupees at 1430 IST on Wednesday.
During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.00-7.12%. (Anupreksha Jain)
India Gilts: Recover some losses; unch policy stance disappoints few
MUMBAI–1158 IST-–Prices of government bonds recovered some losses as traders shook off the disappointment over the policy stance being kept unchanged by the Monetary Policy Committee at its last meeting for 2023-24 (Apr-Mar), dealers said. Traders now await the post-policy press conference for further cues.
During Reserve Bank of India Governor Shaktikanta Das’s statement, the gilt prices fell as the policy stance of “withdrawal of accomodation” was retained, dealers said. Ahead of his statement, traders had stepped up purchase betting on the stance change to “neutral”.
Among on-the-run gilts, the 7.18%, 2037 bond traded higher, as traders stepped up purchases as the spread between the paper and the 7.18%, 2033 bond narrowed, making the former lucrative, dealers said. Currently, the spread between the two papers is at 2 basis points.
“The entire reaction during the MPC was a knee-jerk one as some were expecting a stance change leading the market to react this way,” a dealer at a state-owned bank said. “However, the market should look at the fact that the votes for policy rates were in the ratio of 5-1. This, along with the CPI figures are a good sign for the market.” External Member Jayanth Varma voted for a 25-bps rate cut and voted for a change of stance to neutral.
The governor said that the domestic rate setting panel saw a voting pattern of 5-1 majority to keep the stance unchanged at 6.50% after raising it by a cumulative 250 basis points since May 2022 to tame inflationary pressures. This is the sixth straight policy in which the committee has left the repo rate unchanged.
The RBI projected the country’s GDP growth in the next financial year starting April at 7.0%. In the policy statement, Governor Shaktikanta Das also pointed to the growth estimate of 7.3% for the current year given by the Ministry of Statistics and Programme Implementation.
In its sixth monetary policy statement for 2023-24, the RBI raised its growth projection for the first three quarters of the next fiscal year. The central bank raised its growth estimate for Apr-Jun to 7.2% from 6.7%, for Jul-Sep to 6.8% from 6.5%, and for Oct-Dec to 7.0% from 6.4%. The RBI projected growth of 6.9% in the last quarter of next financial year.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 392.85 bln rupees, as against 191.00 bln rupees at 1130 IST on Wednesday.
During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.00-7.12%. (Siddhi Chauhan)
India Gilts: Fall as MPC retains stance as ‘withdrawal of accomodation’
MUMBAI–1014 IST–Prices of government bonds fell, tracking the Reserve Bank of India’s governor Shaktikanta Das’s speech wherein he stated that the Monetary Policy Committee had voted to retain their stance as “withdrawal of accomodation”, dealers said.
The governor said that the domestic rate setting panel saw a voting pattern of 5-1 majority to keep the stance unchanged. According to an Informist poll, the domestic rate-setting panel was expected to leave the policy repo rate unchanged at 6.50% for the sixth consecutive meeting. However, a few participants had expected a stance change.
“Some were hoping for a stance change, however the meeting has proved them wrong,” a dealer at a state-owned bank said.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 180.20 bln rupees, as against 121.70 bln rupees at 1030 IST on Wednesday.
During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.00-7.12%. (M.C. Adhiinthran)
India Gilts: Rise; market keenly awaits MPC meet outcome at 1000 IST
MUMBAI–0928 IST–Prices of government bonds rose as traders bet on a positive liquidity outlook at the outcome of the three-day meeting of the Monetary Policy Committee, due at 1000 IST, dealers said. A slight overnight fall in US yields also supported gilt prices.
“Investors are really active as the market is not expecting any negative outcome from the MPC meeting, so they (investors and traders) are taking a punt on that,” a dealer at a private bank said. “Post policy, the market is likely to turn more volatile with an upward bias.”
Meanwhile, some dealers expect that the MPC may not change its stance to ‘neutral’ from its current stance of ‘withdrawal of accommodation’ as the central bank may not want overnight money markets rate to fall below the repo rate, which is currently at 6.50%.
According to an Informist poll, the domestic rate-setting panel is expected to leave the policy repo rate unchanged at 6.50% for the sixth consecutive meeting. Traders will keenly track comments by Reserve Bank of India Governor Shaktikanta Das on liquidity conditions in the banking system, as these may give cues on the interest rate trajectory going forward, dealers said.
Since Friday, the RBI has announced six variable rate reverse repo tenders. The central bank had earlier conducted 11 variable rate repo auctions in order to infuse liquidity into the banking system.
Meanwhile, the yield on the 10-year benchmark US Treasury note fell to 4.10% from 4.13% at the close of Indian markets on Wednesday. US yields fell as investors assessed comments by Federal Reserve Bank of Boston President Susan Collins, who said that if conditions in the US economy met expectations, the Fed would likely start cutting rates later this year.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 68.85 bln rupees, as against 65.05 bln rupees at 0930 IST on Wednesday.
During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.00-7.12%. (Anupreksha Jain)
India Gilts:Seen opening steady on caution ahead of MPC meet outcome
MUMBAI – Prices of government bonds are expected to open steady as traders may avoid placing aggressive bets on caution ahead of the three-day meeting outcome of the Reserve Bank of India’s Monetary Policy Committee, scheduled at 1000 IST, dealers said. A slight overnight fall in US Treasury yields may keep gilts afloat. The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.00-7.12% today, against 7.07% on Wednesday.
According to an Informist poll, the domestic rate-setting panel is expected to leave the policy repo rate unchanged at 6.50% for the sixth consecutive meeting. The focus will be on whether the members of the rate-setting panel think it is time to change the policy stance of ‘withdrawal of accommodation’. Also in focus will be the measures by the central bank to ease the large liquidity deficit in the banking system.
Some dealers said the Monetary Policy Committee may not soften its stance to “neutral” when it declares the outcome of its meeting today because the signalling power of the move would be overkill after overnight money market rates have already fallen. The market will look forward to the various methods the central bank could use in order to control liquidity, which it may highlight in the policy review outcome today, dealers said. Many feel that the central bank may continue using variable rate repo and variable rate reverse repo operations.
Since Friday, the RBI has announced six variable rate reverse repo tenders. The central bank had earlier conducted 11 variable rate repo auctions in order to infuse liquidity into the banking system. Traders will keenly gauge comments of RBI Governor Shaktikanta Das, as these may give cues on the interest rate trajectory going forward, dealers said. Even the section of the market that does not expect a stance change does see a softer policy tone this time around.
Meanwhile, the yield on the 10-year benchmark US Treasury note fell to 4.10% from 4.13% 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.
On the global front, market participants await fresh economic data from the US after recent comments by US Federal Reserve officials suggested that fresh economic data from the country is being eyed for any decision regarding the interest rate trajectory. On Wednesday, President of the Federal Reserve Bank of Boston Susan Collins said that if the US economy meets her expectations, the Federal Reserve will likely start cutting rates later this year.
Traders have pushed back expectations of the Fed’s first interest rate cut to May after previously pricing in a likely rate reduction in March. According to the CME Group’s FedWatch tool, 81.5% of Fed fund futures traders expect the federal funds interest rate to remain at 5.25-5.50% in the March meeting. However, 55.6% of them expect a 25-basis-point rate cut in May. (Siddhi Chauhan)
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Saji George Titus
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