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Wednesday, May 25, 2022

India Gilts Review: Steady amid low volumes ahead of US FOMC outcome

Informist, Wednesday, Nov 3, 2021


By Vaibhav Chakraborty


NEW DELHI – Government bonds ended on a steady note amid dismal trade volumes as traders stayed on the sidelines due to caution ahead of the US Federal Open Market Committee outcome, scheduled to be announced later in the evening today, dealers said.


The 10-year benchmark 6.10%, 2031 bond ended at 98.15 rupees or 6.36% yield, against 98.13 rupees or 6.36% yield on Tuesday.


Today’s US FOMC outcome along with the Bank of England’s monetary policy meet outcome on Thursday are expected to provide guidance to the near term course of interest rates and the pace at which the central banks could look to unwind their quantitative easing programmes, dealers said.


Certain central banks have already moved to hike rates and unwind their ultra-accommodative measures at a faster-than-expected pace that has led to a surge in short-term rates across global debt markets including India, as investors have started factoring in a quicker-than-expected withdrawal, dealers said.


The US FOMC is likely to lay the path for unwinding of its $120-bln asset purchase programme and could provide a cue on the pace with which the central bank could look to hike interest rates going forward, dealers said. Meanwhile, some analysts expect the BoE to embark on a rate hike cycle beginning from the outcome of this meet.


With other central banks concerned about elevated inflation and shifting from the ultra-accommodative monetary policy stance, the Reserve Bank of India cannot risk being far behind them, dealers said.


“Market has stayed on the sidelines for much of the week as there is an extended holiday and with US FOMC set to deliver, what can be a crucial policy for global rate view, nobody is willing to add or cut much of their positions,” a dealer with a private sector bank said. 


According to the market, the RBI has already suggested with its recent actions such as halting its Government Security Acquisition Programme from October to stepping up its liquidity absorption through variable rate reverse repo operations, that policy normalisation is well underway, dealers said.


The rates on short-term money market instruments in India have surged by 30-50 basis points since mid-September, as the RBI stepped up its liquidity absorption through term reverse repo operations. The amount of surplus liquidity being parked by banks with the RBI under the fixed rate reverse repo had fallen below the 2-trln-rupee mark. 


Meanwhile, traders were of the view that the extended weekend amidst uncertainties did not warrant adding or trimming their bond holdings significantly, dealers said.


Domestic money markets will be shut on Thursday and Friday on account of Diwali and Diwali Balipratipada.


According to data on the RBI’s Negotiated Dealing System – Order Matching Platform, the market-wide turnover was 109.90 bln rupees today, against 228.55 bln rupees on Tuesday.



Gilts will not be traded on Thursday and Friday as domestic money markets will be closed on account of Diwali and Diwali Balipratipada.


On Monday, gilts may take cues from the US FOMC’s outcome later today.


Any sharp movement in US Treasury yields and crude oil prices may guide domestic bonds in early trade.


The yield on the 10-year benchmark 6.10%, 2031 bond is seen at 6.32-6.40%.    









5.63%, 2026





6.64%, 2035





6.67%, 2035 98.6000 6.8264% 98.5600 6.8309%

5.85%, 2030





6.10%, 2031 98.1475 6.3577% 98.1300 6.3599%

India Gilts: In thin band; volumes low due to truncated wk, FOMC meet


 1320 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS6.10%, 2031PRICE (rupees)98.1198.1898.1098.1898.13YTM (%)      6.36376.35316.36446.35316.3599


NEW DELHI– 1320 IST–Government bonds were confined to a narrow range amid dismal trade volumes as traders stayed on the sidelines due to a truncated week and caution ahead of the outcome of the US Federal Open Market Committee’s meeting, dealers said.


With domestic money markets shut on Thursday and Friday on account of Diwali and Diwali Balipratipada, respectively, market-wide trade turnover dipped to 65.15 bln rupees at 1300 IST from an average of 120-150 bln rupees, as attendance at treasury desks was low, dealers said.


“There are limited people in the office at the moment, since it is an extended weekend nobody wants to add or cut their positions and that too when the US Fed and BoE are expected to deliver their policies,” a dealer with a primary dealership said.


“We have to wait and see how things pan out in both these meetings, as several CBs (central banks) have already shifted to a rate hike cycle, these events could suggest what course the RBI may take as they cannot be too far behind other CBs,” the dealer added


The market is wary of adding or trimming bond holdings ahead of an extended weekend, in which the US FOMC and the Bank of England will detail their policy outcome. The central banks are expected to embark on unwinding their quantitative easing programmes and may provide guidance on the future course of interest rates amid growing concerns over inflation, dealers said. 


The yield on the 10-year benchmark 6.10%, 2031 bond is seen at 6.34-6.38% today.  (Vaibhav Chakraborty)

India Gilts: Steady despite fall in crude on caution ahead of FOMC


 1025 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS6.10%, 2031PRICE (rupees)98.145098.180098.100098.180098.1300YTM (%)      6.35816.35316.36446.35316.3599


NEW DELHI–1025 IST–Government bonds were steady in thin trade on caution ahead of the outcome of the US Federal Open Market Committee meeting, scheduled to be released after market hours today.


The US rate-setting panel is expected to announce it would begin tapering its outsized asset purchases, with investors expecting a benign pace of tapering that had largely been reflected in domestic gilt prices as well, dealers said.


Further, traders avoided making aggressive bets ahead of a four-day weekend with several policy announcements scheduled globally, dealers said.


Meanwhile, traders disregarded cues from a sharp fall in oil prices in Asian trade today as the Brent crude oil futures for January traded broadly in the $73-74 per bbl band, dealers said. Volumes were muted as traders kept to the sidelines, with US Treasury yields also steady before the key rates decision.


“On a usual day, crude would have made a difference, but there’s no point in taking positions on that because of the FOMC coming up and the long weekend; everyone will want to go in as light as possible,” a dealer at a private bank said.


The 5.63%, 2026 bond was slightly up after the cutoff at the 28-day, 500-bln-rupee variable rate reverse repo auction on Tuesday was lower than the expected 3.99%. With banks parking funds with the Reserve Bank of India at a lower rate, traders deployed their excess liquidity in short-term gilts, dealers said.


The yield on the 10-year benchmark 6.10%, 2031 bond is seen at 6.34-6.38% today.  (Aaryan Khanna)

India Gilts: Seen up on sharp fall in crude prices; FOMC outcome eyed


NEW DELHI – Government bonds are seen opening higher, tracking a slump in crude prices in early trade today, easing fears of higher import-led inflation in the domestic economy.


After settling steady on Tuesday, crude prices fell sharply in Asian trade today, ahead of the release of key inventory data from the US. A higher-than-expected rise in US stockpiles of crude last week had led to a sharp correction in oil prices.


The Brent crude oil futures contract for January settled at $84.72 per bbl on Tuesday, and fell 1.4% to $83.55 per bbl today. High crude oil prices lead to a higher import bill for India, the world’s third-largest consumer of crude oil, thus leading to elevated inflation and giving the RBI less room to extend its policy accommodation.


Investors may avoid placing large bets ahead of the outcome of a key meeting of the Organization of Petroleum Exporting Countries and its allies on Thursday. The cartel is likely to continue with its plans to increase output by just 400,000 bbl per day every month, at a time when global demand has risen steadily.


Moreover, traders may keep to the sidelines in a truncated week due to caution ahead of the outcome of the US Federal Open Market Committee’s meeting, due later today.


Policymakers in the US are widely expected to make significant announcements on plans to begin tapering the Federal Reserve’s $120-bln monthly asset purchase programme. While a benign taper is expected and has been priced in, US Treasury yields – and consequently, yields on domestic gilts – are seen shooting up if the pace of unwinding monetary stimulus is sharper than expected, dealers said.


On the domestic front, lack of significant domestic cues may lead to thin trade, dealers said. However, short-term gilts may remain supported after the cut-off at the 28-day, 500-bln-rupee variable rate reverse repo auction was lower than the expected 3.99%, the highest possible cut-off.


Meanwhile, traders may trim their holdings towards the end of the day ahead of a long weekend, with several key policy outcomes in focus including the OPEC decision, the US FOMC meeting, and the Bank of England’s policy outcome on Thursday, dealers said.


Domestic money markets will be shut on Thursday and Friday on account of Diwali and Diwali Balipratipada, respectively.


The yield on the 10-year benchmark 6.10%, 2031 bond is seen at 6.32-6.39% today.  (Aaryan Khanna)




US$1 = 74.46 rupees

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT


Edited by Michael Correya


Cogencis news is now Informist. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.


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Source: Cogencis

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