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India Gilts Review:Steady on caution ahead of RBI policy, low volumes

Informist, Thursday, Dec 2, 2021


By Vaibhav Chakraborty


NEW DELHI – Government bonds ended steady today because traders were cautious heading into the Reserve Bank of India’s monetary policy meet scheduled for Dec 6 to Dec 8 amid uncertainty over the near-term economic growth and interest rates trajectory, dealers said.


The 10-year benchmark 6.10%, 2031 bond ended at 98.20 rupees or 6.35% yield, against 98.19 rupees or 6.35% on Wednesday.


Till the last week of November, markets were pricing in that RBI would hike the current reverse repo rate of 3.35% and provide guidance over the near-term course of policy normalisation, dealers said.


The market was of the view that RBI has already set the ground for a reverse repo hike by tacitly nudging the short-term money market rates through temporary absorption of large parts of the surplus liquidity in the banking system through its variable rate reverse repo operations, dealers said.


Noting the higher cutoff being set for such operations, short-term debt instruments such as Treasury bills, commercial papers, and certificate of deposits have surged, dealers said.  


Meanwhile, US Federal Reserve Chair Jerome Powell on Tuesday said it is appropriate for the central bank to taper its asset purchase a few months earlier than was detailed in the November meeting amid elevated inflation, while suggesting that inflation was no longer seen as “transitory”. 

“There is no interest in the market right now, whatever movement we saw early on could not sustain as everyone wants to stay agile and nimble ahead of policy, what happens there will give us some bit of clarity over the near term direction of the market,” a dealer with a private sector bank said.


However, the detection of a new variant of coronavirus–Omicron–considered to be “highly contagious” has led to fresh concerns about global economic growth, as investors wait for more information about the efficacy of the current COVID vaccines to neutralise the impact of the virus, dealers said.    


The new variant could put central banks in a spot of bother till there is more clarity on the economic consequences of the virus, and they may, as a caution, maintain status quo on monetary policy, dealers said.


“We have to wait and watch how the virus situation unfolds as well because at this point that holds a key in which direction the central banks would sway in,” the dealer added.  


Trade volumes were also muted today as traders preferred to limit exposure on their bond portfolio amid uncertainty and ahead of the 240-bln-rupee weekly gilt auction Friday, dealers said.

The government will borrow 130 bln rupees through the sale of the 6.10%, 2031 bond, 40 bln rupees through the FRB 2028 and 70 bln rupees through the 6.95%, 2061 bond.


According to data on RBI’s Negotiated Dealing System – Order Matching platform, the market-wide turnover today was 140.45 bln rupees, against 191.40 bln rupees on Wednesday.



Government bonds may open steady on Friday as traders may stay on the sidelines ahead of the 240-bln-rupee weekly debt sale.


The government will borrow 130 bln rupees through the sale of the 6.10%, 2031 bond, 40 bln rupees through the FRB 2028 and 70 bln rupees through the 6.95%, 2061 bond.


Traders may be cautious in the run-up to RBI’s policy review meeting from Dec 6 to Dec 8 and refrain from placing large bets due to the recent volatility as they wait for more details about Omicron.


Any sharp movement in US Treasury yields and crude oil prices might also lend cues at open.


On Friday, the yield on the 10-year benchmark 6.10%, 2031 bond is seen at 6.33-6.38%.









5.63%, 2026





5.74%, 2026





6.64%, 2035 98.9300 6.7615% 98.8975 6.7652%6.67%, 2035





6.10%, 2031 98.2000 6.3520% 98.1900 6.3534%

India Gilts: Off-high on caution ahead of RBI policy, volumes thin


 1350 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS6.10%, 2031PRICE (rupees)98.212598.300098.182598.260098.19YTM (%)      6.35026.33786.35456.34356.3534


NEW DELHI– 1350 IST–Government bonds pared gains in a thin trade because traders exercised caution ahead of the Reserve Bank of India’s monetary policy meet, scheduled for Dec 6-8, and weekly gilt auction on Friday, dealers said. 


Gilts had risen earlier in the day as concern over the impact of the Omicron variant on the global economic recovery prompted investors to step up their purchases of US Treasury notes on Wednesday despite the hawkish comments from the US Federal Reserve chair, dealers said.


“People are waiting to see what transpires on the day of policy, which is why saw that the initial gains could not sustain as traders are not looking to hold onto their position when there is uncertainty,” a dealer with a state-owned bank said. “I think that these levels will hold till policy and don’t expect anything on domestic front changing that, however, we would keep a tab on global cues and see if there is more clarity on the virus.”


Amid global uncertainties over the near-term view on economic growth and with the RBI set to deliver a crucial monetary policy next week, traders preferred to limit exposure on their bond portfolio, dealers said.


The market is divided on the view whether the RBI would look to normalise the Liquidity Adjustment Facility corridor through a reverse repo rate hike, or will they take cognizance of the new strain of coronavirus and maintain a status quo till there is more clarity on the impact of virus on global economic recovery, dealers said.


Meanwhile, some traders also moved with caution ahead of the 240-bln-rupee weekly gilt auction on Friday, dealers said.    


Yield on the 10-year benchmark 6.10%, 2031 bond is seen at 6.32-6.38%.  (Vaibhav Chakraborty)

India Gilts: Up on muted US ylds, crude; RBI policy eyed, limits gains


 1030 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS6.10%, 2031PRICE (rupees)98.252598.300098.235098.260098.1900YTM (%)      6.34466.33786.34706.34356.3534


NEW DELHI–1030 IST–Government bonds rose as traders stepped up purchases of dated securities as US Treasury yields and crude oil prices closed sharply off-highs on Wednesday, dealers said.


Investors globally moved to haven assets on concerns of fresh restrictions on movement due to detection of cases of the Omicron variant of COVID-19 in various parts of the world, including the US.


Moreover, risk sentiment remained weak due to uncertainty around the strain’s rate of transmissibility and fears that it could evade vaccines.


Yield on the 10-year US Treasury note was flat at 1.43% at close on Wednesday, sharply off the 1.50% it hit during the day. A fall in US Treasury yields widens the interest rate differential between the haven asset and emerging market debt, making the latter more appealing for foreign investors.


Brent crude oil futures for February settled at $68.87 per barrel, down $3 from the day’s high. Typically, a fall in crude oil prices reduces risks of imported inflation in India, and provides more room for the RBI to prolong its monetary policy accommodation.


“There is some positive sentiment on crude, but I expect it’ll get taken soon because of lightening on auction and policy on the domestic front,” a dealer at a state-owned bank said.


Gains were limited in the run-up to the Reserve Bank of India’s upcoming policy review next week with the market split on the pace of monetary policy normalisation, dealers said.


Even as central banks, including the RBI, move towards faster unwinding of monetary policy stimulus, they will monitor the risk Omicron poses to global growth, dealers said.


Concerns rose in domestic markets over the pace of tightening by the US Federal Reserve after Chair Jerome Powell discarded terming inflation “transitory” and opined that the central bank could look to wrap up its asset purchases, currently scheduled to wind down by June, before that. 


He was joined Wednesday by the governor of two of the Fed’s regional banks, who echoed the view that the $15-bln-per-month taper did not go far enough in addressing the jump in inflation in the US, which touched a three-decade high in October.


Meanwhile, the 10-year benchmark 6.10%, 2031 gilt is seen falling out of favour over the next two auctions as it could be replaced by a new 10-year paper.


The bond has an outstanding amount of 1.22 trln rupees, with two more auctions taking it close to the unofficial cap of 1.5 trln rupees in a single bond that the government has preferred in recent months.


Traders placed short bets on the gilt ahead of its fresh issuance at the weekly auction on Friday. The government has offered to sell 40 bln rupees of the floating rate bond 2028, 130 bln rupees of the 6.10%, 2031 paper and 70 bln rupees of the 6.95%, 2061 bond.


Yield on the 10-year benchmark 6.10%, 2031 bond is seen at 6.32-6.38%.  (Aaryan Khanna)



US$1 = 74.9950 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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