Informist, Wednesday, Feb 28, 2024
By Siddhi Chauhan
MUMBAI – Government bond prices ended steady on caution ahead of the release of US core personal consumption expenditure data and India’s GDP data for Oct-Dec, both scheduled for Thursday, dealers said. Tepid volumes persisted through the day as trade lacked direction, and prices moved in a narrow range.
The 10-year benchmark 7.18%, 2033 bond closed at 100.77 rupees, or 7.07% yield, compared with 100.74 rupees, or 7.07% yield, on Tuesday. During the day, the bond moved in a tight 10-paisa band as traders refrained from placing large bets, dealers said.
“The market traded in a range-bound mode with low volume ahead of the India GDP data and US PCE (personal consumption expenditure) data,” a dealer at a private bank said. “Nothing much was there in the market today, it will continue to trade in this manner until both the data are released.”
The US core personal consumption expenditures price index, the US Federal Reserve’s preferred inflation gauge, is expected to rise by 0.4% on a month-on-month basis in January, as against a 0.2% rise in December, a Reuters poll showed. Earlier this month, US CPI inflation data for January surprised on the upside, both on a sequential and annual basis.
While the inflation data will allow traders to gauge the interest rate trajectory in the world’s largest economy, the GDP data will help throw some light on the same on the domestic front, dealers said. Traders have been unsure about the rate cut timeline as bringing back inflation to the target level has proved to be difficult in both the US and India, while growth has been resilient.
An Informist poll showed that India’s GDP growth for Oct-Dec is likely to have slowed down to a three-quarter low of 6.6%. The yield on the benchmark 7.18%, 2033 bond is seen falling to 7.02% if the GDP reading is 6% or below and is seen rising to 7.10% if the GDP reading is 7% or above, dealers said.
In the first half of the day, targeted buys from foreign portfolio investors in the 10- and 14-year benchmark bonds helped long-term bonds gain. Some insurers and pension funds were also speculated to be picking up bonds maturing in 2060-2063 due to the lack of fresh supply of gilts after auctions for 2023-24 (Apr-Mar) ended on Feb 16.
Intraday short selling activity picked up in 7.18%, 2033 and 7.18%, 2037 papers, which erased the minimal gains in the early session, dealers said. Dealers said they preferred the 10-year bond over the 14-year benchmark gilt as it has been the prime target for FPI buys. This was reflected in the yield spread between the two – after being almost flat, the 2037 gilt has a 5 basis point spread over the 2033 bond, which may widen further, dealers said.
“The market didn’t have any cues to track, so some traders were trying to make what little profits they could by placing short bets and covering them,” a dealer at a state-owned bank said. “Traders are short-selling the bond (7.18%, 2033 bond) if the prices go up, and then they are covering them when the prices inch to a lower level.”
The short-term bonds remained out of favour due to the lack of clarity on the rate-cut front in India. Despite this, the 7.06%, 2028 bond was the fourth-most traded gilt on the Reserve Bank of India’s Negotiated Dealing System-Order Matching platform.
Some dealers picked this paper on Monetary Policy Committee external member Jayanth Varma’s view that the real interest rate is too high and is stifling economic growth. Some traders expect a change in the policy stance from “withdrawal of accommodation” to neutral in April. As a result, they feel off-the-run papers in maturities up to five years are a good opportunity now to accumulate, dealers said.
At the most recent policy review earlier this month, Varma voted for a rate cut – the first such vote since May 2020. Explaining the rationale behind his vote, Varma said in the policy minutes, “I do not believe that such a high real rate is required at this stage to drive inflation down to the target of 4%. It is true that economic growth is holding up well, but there is no evidence at all that the economy is overheating.”
According to data on the RBI’s Negotiated Dealing System-Order Matching platform, the turnover was 244.75 bln rupees, down from 255.35 bln rupees on Tuesday. No trade was carried out using the wholesale digital rupee pilot today, for the second straight day.
OUTLOOK
On Thursday, bond prices may open steady on caution ahead of US core personal consumption expenditure data due to be released at 1900 IST, dealers said. Traders may also await India’s GDP data for Oct-Dec at 1730 IST.
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 7.04-7.08% during the day.
India Gilts: Tad up; tepid volumes ahead of key data later this wk
MUMBAI–1453 IST–Prices of government bonds were a tad higher in thin trade, dealers said. After the rise in prices early in the day, the market remained in a thin range as traders did not place large and aggressive bets ahead of US January personal consumption expenditures data and India’s GDP reading for Oct-Dec, both due Thursday, dealers said.
“Another dull day, entirely trader driven,” a dealer at a state-owned bank said. “There are no cues for market to take direction from…have to wait until US PCE (personal consumption expenditures) and India GDP is out for some cues.”
Amid thin trade, foreign banks were seen buying the benchmark 10- and 14-year bonds at lucrative levels, dealers speculated. Foreign banks were the top net buyers on Tuesday, data from the Clearing Corp of India Ltd showed.
Volumes in the market will remain low until the release of US personal consumption expenditures and India’s GDP reading for Oct-Dec, dealers said. The US core personal consumption expenditures price index, the US Federal Reserve’s preferred inflation gauge, is expected to rise by 0.4% on a monthly basis in January, as against a 0.2% on-month rise in December, a Reuters poll showed.
A poll conducted by Informist showed that India’s GDP growth for Oct-Dec is likely to have slowed down to a three-quarter low of 6.6%, mainly as the statistical effect of a low base normalises. The yield on the benchmark 7.18%, 2033 bond is seen falling to 7.02% if the GDP reading is 6% or below and is seen rising to 7.10% if the GDP reading is 7% or above, dealers said.
Meanwhile, the 91-day T-bill saw a lower-than-expected cutoff at the auction today, dealers said. The Reserve Bank of India set a cutoff of 6.96% today, lower than expectations of 6.99% as polled by Informist. The easing liquidity deficit in the banking system allowed some participants to bid aggressively for the paper on hopes that the liquidity conditions may improve in the coming days. At the end of trade on Tuesday, the liquidity deficit in the banking system was at 1.88 trln rupees, as against 2.41 trln rupees on Monday, data from the RBI showed. The liquidity deficit was below the 2-trln-rupee mark for the first time in a week.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 157.60 bln rupees, as against 182.90 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 7.04-7.09%. (M.C. Adhiinthran)
India Gilts: Rise as traders buy at lucrative levels; key data eyed
MUMBAI–1240 IST–Prices of government bonds rose as traders bought at lucrative levels, dealers said. The market awaits the release of US core personal consumption and expenditure data and India’s GDP data for Oct-Dec, due Thursday, dealers said.
“The market is devoid of cues to track, we are waiting for GDP data (Oct-Dec) and US PCE data due tomorrow (Thursday),” a dealer at a state-owned bank said. “However, there is some buying momentum in the 10-year (7.18%, 2033 bond). It could be foreign banks as the levels are lucrative.”
Dealers speculated that foreign banks, state-owned banks, and private banks stepped up purchase of the 7.18%, 2033 bond as the level on the paper is lucrative. However, they bought the paper in light volumes on caution ahead of the release of key data due on Thursday, dealers said. As a result, keeping the volumes lacklustre, dealers said.
Meanwhile, dealers said that traders likely participated in spread trading between the 7.18%, 2037 paper and the 7.18%, 2033 bond in order to widen the spread that had earlier narrowed to 3 basis points. Currently, the spread between the two papers has widened to 5 bps.
The US core personal consumption expenditures price index is expected to rise by 0.4% on a monthly basis in January, as against a 0.2% on-month rise in December, a Reuters poll showed.
A poll conducted by Informist shows that India’s GDP growth for Oct-Dec is likely to have slowed down to a three-quarter low of 6.6%, mainly as the statistical effect of a low base normalises. The yield on the benchmark 7.18%, 2033 bond is seen falling to 7.02% if the GDP reading is 6% or below and is seen rising to 7.10% if the GDP reading is 7% or above, dealers said.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 116.75 bln rupees, as against 89.10 bln rupees at 1230 IST on Tuesday. During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.04-7.09%. (Siddhi Chauhan)
India Gilts: Rise; mkt cautious ahead of US inflation data Thu
MUMBAI–0942 IST–Prices of government bonds rose as traders stepped up purchases at yield levels considered lucrative, dealers said. However, they refrained from placing aggressive bets due to caution ahead of the release of US core personal consumption and expenditure data, due Thursday, dealers said.
Volumes were low as traders avoided large bets. Volume remained concentrated in the longer-term bonds due to the ongoing tight liquidity in the banking system, dealers said. At the end of trade on Tuesday, the liquidity deficit in the banking system was at 1.88 trln rupees.
Amongst on-the-run gilts, the gains were led by the 7.18%, 2037 bond in thin trade. “There are attractive premiums in the duration papers. At these levels, 14-year paper looks good,” a dealer at a private bank said. “That’s why, the short-tenure papers have hardly moved.”
The market has been testing the 7.06-7.07% levels on the benchmark 7.18%, 2033 paper for the last few trading sessions, dealers said. Therefore, traders stepped up purchases around these levels, though the volumes remained low ahead of the release of the data.
This week, data is due both on the global and domestic front, which has added caution to the market, dealers said. In the US, the core personal consumption and expenditure data, which is the US Federal Reserve’s preferred inflation gauge, for January, is scheduled for release on Thursday. According to a Dow Jones poll, the core PCE index is seen rising 2.8% on year, as against 2.9% in December. Meanwhile, it is seen rising 0.4% on month, as against 0.2% last month. Meanwhile, personal income is expected to rise 0.3% on month, the same as in December.
Rate cut expectations in the world’s largest economy have been pushed back to June, with 51.3% of traders expecting a cut of at least 25 basis points, according to the CME FedWatch Tool. Expectations of a rate cut in March have been almost entirely wiped out, and a mere 18.4% of Fed fund futures traders expect a rate cut even at the meeting in May. “The movement in US yields has been restricted, so that caution can be seen in our market as well,” a dealer at another private bank said. “It’s the US data which will move the market. We don’t have worries on the domestic front.”
On the domestic front, traders await India’s GDP estimates for the December quarter, due Thursday, dealers said. A poll conducted by Informist shows that India’s GDP growth for Oct-Dec is likely to have slowed down to a three-quarter low of 6.6%, mainly as the statistical effect of a low base normalises.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 48.80 bln rupees, as against 27.25 bln rupees at 0930 IST on Tuesday. During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.04-7.09%. (Nishat Anjum)
India Gilts: Seen opening steady on lack of significant cues
MUMBAI – Prices of government bonds are seen opening steady as the market lacks significant cues, dealers said. Investors await the GDP reading for the Oct-Dec quarter, due Thursday. The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.04-7.10%, against 7.07% on Tuesday.
US Treasury yields may not lend cues for opening. However, the market may track US yields closely during the day due to a lack of firm domestic cues, dealers said. The yield on the 10-year benchmark US Treasury note was at 4.29%, as against 4.27% at the time of Indian markets close on Tuesday. US yields remained largely steady as traders await personal consumption and expenditure data for January, due Thursday. The US core personal consumption expenditures price index is expected to rise by 0.4% on a monthly basis in January, as against a 0.2% rise on-month in December, a Reuters poll showed.
Volumes in the market are seen lacklustre till the US personal consumption and expenditures data for January and India’s GDP readings for Oct-Dec are released on Thursday, dealers said. The Reserve Bank of India expects a growth of 6.5% in the period, lower than last quarter’s growth of 7.6%. A poll conducted by Informist shows that India’s GDP growth for Oct-Dec is likely to have slowed down to a three-quarter low of 6.6%, mainly as the statistical effect of a low base normalises. The yield on the benchmark 7.18%, 2033 bond is seen falling to 7.02% if the GDP reading is 6% or below and is seen rising to 7.10% if the GDP reading is 7% or above, dealers said.
At 1030-1130 IST, the Reserve Bank of India will auction 100 bln rupees of 91-day T-bills, 150 bln rupees of 182-day T-bills, and 90 bln rupees of 364-day T-bills. The auction would be eyed to gauge the demand for short-term papers amidst a liquidity deficit in the banking system, dealers said. (M.C. Adhiinthran)
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Saji George Titus
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