India Gilts Review: Down on profit booking; mkt awaits GDP data Fri

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India Gilts Review: Down on profit booking; mkt awaits GDP data Fri

Tuesday, Nov 26

 

By Suyash Pande

 

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MUMBAI – Government bonds weakened today because lack of buying support from soured market sentiment, prompting traders to lock in profits after a recent rise in prices, dealers said. 

 

Today, the 10-year benchmark 6.45%, 2029 closed at 99.75 rupees or 6.48% yield, against 99.83 rupees or 6.47% yield on Monday. The 7.26%, 2029 bond, the second most traded by volume, settled at 104.22 rupees or 6.64% yield, compared with 104.32 rupees or 6.62% yield at the previous close. 

 

Bonds had gained around 20 paise on Monday because market participants were of the view that GDP data for Jul-Sep would show that the ongoing slowdown in economic growth has deepened, increasing the odds of rate cuts by the Reserve Bank of India. 

 

GDP data for Jul-Sep will be released on Friday, while the RBI’s Monetary Policy Committee is scheduled to detail its next policy statement on Dec 5. The central bank has lowered the repo rate by 135 basis points so far in 2019 in a bid to shore up economic growth. 

 

India’s economic growth has been faltering for the past few months, with GDP growing at an over-six-year low of 5.00% in Apr-Jun. According to 27 economists polled by Cogencis, GDP growth is likely to have slowed to 4.6% in Jul-Sep.

 

However, even as the downturn in growth makes a compelling case for a softer monetary policy, investors were reluctant to bet heavily on bonds at a time when the Centre’s finances look increasingly worrying. 

 

State-owned banks net sold 21.83 bln rupees worth of bonds on Monday, data released by the Clearing Corp of India showed. These banks, among the largest holders of bonds, typically sell when prices rise and step up purchases when prices . Over the past month, state-owned banks have turned heavy sellers of bonds whenever prices have risen even slightly, setting a strong floor for yields.

 

The weakness in economic growth has taken a toll on government finances, leading to moderation in revenue collections. Moreover, with the Centre having announced a sharp cut in corporate tax rates, the hole in the tax kitty looks even larger. Consequently, most dealers expect the Centre to miss its budgeted fiscal deficit for the current financial year and potentially resort to additional market borrowing.

 

The unusually large gap between the yield on the 10-year benchmark bond and the RBI’s repo rate reflects the anxiety on the fiscal front, dealers said. At 6.48%, the yield on the 10-year benchmark 6.45%, 2029 bond is 133 bps above the repo rate, a much wider spread than usually exists in an of falling interest rates.

 

In the past, the yield on a fairly priced 10-year bond has been less than 50 bps in a scenario where the central bank’s monetary policy stance has been an accommodative one, like it is at present. In fact, despite the promise of more rate cuts, bonds maturing in more than 10 years have fared poorly over the past few months as concerns about the Centre’s fiscal situation have built up. 

 

Currently, the yield on the 14-year 7.57%, 2033 bond is a whopping 54 basis above the 10-year benchmark bond, which is likely the widest spread in around a decade, dealers said. Typically, a 14-year bond yields around 20 bps more than the 10-year paper, dealers said.

 

“No is sustaining in this market because PSU banks are selling at every uptick,” a dealer with a primary dealership said.

 

“The spreads tell the entire story. Traders have been trying to make a rally sustain on the view that rates are coming down. But, the 10-year benchmark yield has stubbornly refused to fall below 6.45%. Maybe if GDP is close to 4.00% then we could see a rally but even then, with the fisc looking so bad, the spread between the 10-year and the repo rate is undoubtedly going to remain above 100 bps,” he said.

 

Market-wide turnover was at 247.50 bln rupees, against 296.10 bln rupees on Monday, according to the RBI’s Negotiated Dealing System – Order Matching platform.

 

OUTLOOK

Government bonds are likely to open steady on Wednesday as market participants may tread with caution ahead of the Jul-Sep GDP growth print for Jul-Sep, due to be released on Friday.

 

Even though market participants expect the RBI to cut interest rates in the December monetary policy in response to weakening economic growth, bond traders may refrain from large bets due to concerns over the Centre’s finances.

 

Any sharp overnight movement in US Treasury yields and may steer bonds in early trade.

 

The yield on the 10-year benchmark 6.45%, 2029, bond is seen in a band of 6.45-6.50%, against 6.48% at close today.

 

  TODAY MONDAY
Price Yield Price Yield

7.32%, 2024

104.0600

6.1967%

104.1300

6.1785%

7.27%, 2026

104.2100

6.4507%

104.2600

6.4416%

7.26%, 2029 104.2175 6.6350% 104.3200 6.6204%
6.45%, 2029 99.7450 6.4840% 99.8300 6.4722%
7.57%, 2033 104.7800 7.0170% 104.8200 7.0126%

 

India Gilts: Down on profit booking, lack of PSU bk buying support

 

  1330 IST   PRICE HIGH   PRICE LOW        OPEN     PREVIOUS
6.45%, 2029
PRICE (rupees) 99.71 99.88 99.67 99.82 99.83
YTM (%)       6.4892 6.4656 6.4944 6.4736 6.4722

 

  1330 IST   PRICE HIGH   PRICE LOW        OPEN     PREVIOUS
7.26%, 2029
PRICE (rupees) 104.20 104.36 104.16 104.35 104.32
YTM (%)       6.6379 6.6153 6.6430 6.6163 6.6204

 

MUMBAI-–1330 IST–Government bonds fell because market participants took the opportunity to lock in profits after a sharp rise in prices on Monday, dealers said. 

 

A lack of buying support from state-owned banks also dented the market’s confidence, prompting traders to book profits, dealers said. Bond prices had risen by around 20 paise on Monday as market players were of the view that GDP data for Jul-Sep would show that the ongoing slowdown in growth has intensified, strengthening the case for the Reserve Bank of India to cut rates. The GDP data is due Friday, while the RBI will detail its next monetary policy statement on Dec 5.

 

While a deepening slowdown in growth makes a compelling case for a softer monetary policy, concerns over the Centre’s finances and the selling pressure by public sector banks made traders wary of betting on bonds, dealers said.

 

State-owned banks net sold 21.83 bln rupees worth of bonds on Monday, data released by the Clearing Corp of India showed. These banks, which are among the largest holders of bonds, typically sell when prices rise and step up purchases when prices decline. Over the past month, state-owned banks have turned heavy sellers of bonds whenever prices have risen even slightly, setting a strong floor for yields.

 

The reluctance to pile on exposure to government bonds has been caused by the worrying state of the Centre’s finances. The slowdown in GDP growth has led to weak revenue collections for the Centre, casting doubts over its ability to meet its fiscal deficit. Most bond traders fear that the Centre may face a fiscal slippage and resort to additional debt issuances, adding to the huge load of bond supply the market is faced with this year. 

 

“The prices are not able to sustain after any rise because buying support is not there and because of that people are now booking profits,” a dealer with a private bank said. 

 

Yield on the 10-year benchmark 6.45%, 2029 bond is seen in a band of 6.47-6.50% for the rest of the day. (Suyash Pande)


India Gilts:Steady as market cautious ahead of Jul-Sep GDP data Fri

 

  0935 IST   PRICE HIGH   PRICE LOW        OPEN     PREVIOUS
6.45%, 2029
PRICE (rupees) 99.82 99.88 99.82 99.82 99.83
YTM (%)       6.4732 6.4656 6.4736 6.4736 6.4722

 

  0935 IST   PRICE HIGH   PRICE LOW        OPEN     PREVIOUS
7.26%, 2029
PRICE (rupees) 104.32 104.36 104.30 104.35 104.32
YTM (%)       6.6203 6.6153 6.6228 6.6163 6.6204

 

NEW DELH–0935 IST–Government bonds were steady because market participants opted to remain on the sidelines ahead of the release of Jul-Sep GDP data on Friday, dealers said.

 

With India’s GDP growth having slowed sharply over the past few months and recent economic indicators indicating a further slowdown in Jul-Sep, bond traders eyed the crucial data release to gauge the extent to which the Reserve Bank of India may cut interest rates from hereon. The central bank has lowered the repo rate by 135 basis points so far in 2019 to combat the slowdown in GDP growth. 

 

According to a Cogencis poll of 27 economists, GDP growth is seen at 4.6% in Jul-Sep, down from a 25-quarter-low of 5.00% in Apr-Jun. Given that the growth slowdown seems to be showing little signs of abating, most bond dealers expect the RBI to cut the repo rate by around 25 bps at its next monetary policy review next week.

 

While the hope of a softer monetary policy has dragged down bond yields over the last few days, concerns over the Centre’s finances and heavy selling pressure by state-owned banks tempered the market’s enthusiasm for bonds, dealers said. Yield on the 10-year benchmark 6.45%, 2029 bond fell 3 basis points on Monday, while state-owned banks net sold 21.83 bln rupees worth of bonds, data released by the Clearing Corporation of India showed. 

 

In fact, state-owned banks, which are among the largest holders of bonds, have turned large sellers whenever bond prices have risen over the past month, setting a firm floor for yields. Worries about the government’s finances have built up because the weakness in GDP growth has led to a moderation in revenue collections. 

 

“Bond prices are most likely to trade in narrow band since we don’t have any fresh cues on the domestic interest rates front and moreover market is looking at the incoming GDP data on Friday, that is likely to put a stamp on RBI’s to lower repo rate by a further 25-35 bps based on how much has the growth fallen,” a dealer with state-owned bank said.

 

Later in the day, bond prices may take cues from the result of state bond auction. Today, 13 states plan to raise 152.65 bln rupees through the sale of bonds.

 

“State bond auction today, may prompt some price action depending on how good the demand is for state gilts today,” the dealer said.

 

The yield on the 10-year benchmark 6.45%, 2029 bond is seen in a band of 6.44-6.49% during the day, dealers said.  (Vaibhav Chakraborty)


India Gilts: Seen steady ahead of Jul-Sep GDP data on Fri

 

NEW DELHI – Government bond prices are likely to open steady today as market participants may refrain from placing aggressive bets ahead of the release of Jul-Sep GDP data on Friday.

 

Bond prices are likely to be supported on hope of the Reserve Bank of India lowering interest rates in its monetary policy review on Dec 5 as market participants expect slowdown in the economy to persist in Jul-Sep. A fall in the GDP print is likely to strengthen the case for the central bank to continue its monetary easing cycle in order to drive growth.

 

The RBI is expected to lower the interest rates by 25-35 basis points in its upcoming policy as the central bank had said in its last policy meeting that it would remain accommodative for as long as necessary to revive economic growth.  

 

The GDP growth rate is expected to fall to a 26-quarter low of 4.6% in Jul-Sep from 5.0% a quarter ago, a Cogencis poll of 27 economists said.

 

Several high-frequency data prints in the last few weeks suggest the slowdown in the economy may have intensified. The industrial growth fell to a record low of (-)4.3% in September, primarily on account of a sharp contraction in production capital and consumer durable goods for the second consecutive month, indicating the slowdown is nowhere near to being over.

 

Later in the day, bond prices may take cues from the result of state bond auction. Today, 13 states plan to raise 152.65 bln rupees through the sale of bonds.

 

The yield on the 10-year benchmark 6.45%, 2029 bond is seen in a band of 6.44-6.49%, against 6.47% at close on Monday. (Vaibhav Chakraborty)  End

  

US$1 = 71.48 rupees

 

Edited by Avishek Dutta

 

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This copy was first published on the Cogencis WorkStation

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Source: Cogencis

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