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India Gilts Review: End down tracking surge in US yields, 5-yr OIS

Informist, Thursday, Jun 16, 2022

 

By Shubham Rana

 

NEW DELHI – Government bond prices reversed its early gains and ended lower today, in line with a rise in US Treasury yields and overnight indexed swap rates as traders assessed the rate hike measures by the Federal Reserve on Wednesday, dealers said.

 

The 10-year bond settled at 92.76 rupees, or 7.62% yield, as against 92.92 rupees, or 7.59% yield on Wednesday.

 

The yield on the 10-year benchmark US Treasury note surged 15 basis points to 3.45% today, despite falling sharply on Wednesday, after the US Federal Open Market Committee’s rate hike decision was broadly on expected lines.

 

The US Federal Open Market Committee during their Jun 14-15 meeting raised the federal funds rate target range by 75 basis points to 1.50-1.75%. Fed officials said they expect to hike rates by 175 bps during the rest of the calendar year.

 

The Fed’s massive rate hike did not come as a surprise to the market, which had feared that the central bank will take more drastic steps to curb the soaring prices. US CPI inflation unexpectedly surged to a nearly 41-year high of 8.6% on year in May from 8.3% in April.

 

“It has all been about the US yields today,” a dealer at a private bank said. “When the US yields were down our market was up and when US yields came up, domestic bond prices fell.”

 

Overseas investors paid fixed rates in domestic swaps to protect their underlying holdings in US Treasuries, leading to longer-tenure OIS contracts rising, dealers said.

 

The 5-year OIS ended at 7.35%, after opening at 7.20% today, against 7.28% on Wednesday. 

 

Traders also trimmed bond holdings to make room for the 320-bln-rupee weekly bond supply on Friday, dealers said.

 

The government has offered to sell 90 bln rupees of the new 2027 gilt, 40 bln rupees of the 2028 floating rate bond, 100 bln rupees of the 7.54%, 2036 gilt, and 90 bln rupees of the 6.99%, 2051 gilt.

 

“While there isn’t a lot of room to place short bets before auction because there is a new 5-year bond and the volumes are very low in the 14-year bond, traders did make room for the supply,” a dealer at another private bank said.

 

According to data on the RBI’s Negotiated Dealing System – Order Matching platform, the market-wide turnover today was 293.35 bln rupees, compared with 196.95 bln rupees on Wednesday.

 

OUTLOOK

Government bond prices are seen steady on Friday as traders are likely to be cautious ahead of the 320-bln-rupee weekly gilt auction.

 

Some traders may trim bond holdings to make room for the fresh supply, while others are expected to place fresh short bets before the auction.

 

The government has offered to sell 90 bln rupees of the new 2027 gilt, 40 bln rupees of the 2028 floating rate bond, 100 bln rupees of the 7.54%, 2036 gilt, and 90 bln rupees of the 6.99%, 2051 gilt.

 

Traders will also keep an eye for any sharp movement in crude oil prices and US Treasury yields.

 

On Friday, yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.58-7.66%.

 

 

Today

Wednesday

Price

Yield

Price

Yield

5.63%, 2026

 94.5925

 7.2734%

 94.6400

 7.2574%

5.74%, 2026

 94.1000

 7.3274%

 94.1450

 7.3140%

6.67%, 2035

 91.2500

 7.7254%

 91.3125

 7.7173%

6.10%, 2031 90.2500 7.6067% 90.4000 7.5816%6.54%, 2032 92.7600 7.6169% 92.9175 7.5921%

India Gilts: Mixed; 6.54%, 2032 bond falls as US yields, OIS surge

 

 1425 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS6.54%, 2032PRICE (rupees)92.8993.2292.8393.1092.92YTM (%)      7.59667.54617.60607.56397.5921

 

NEW DELHI–1425 IST–Government bond prices traded on a mixed note, with the 10-year benchmark 6.54%, 2032 bond reversing early gains as US Treasury yields and overnight indexed swap rates rose, dealers said.

 

The yield on the 10-year benchmark US Treasury note surged 9 basis points to 3.39% today, after falling sharply on Wednesday following the US Federal Open Market Committee’s rate decision, broadly on expected lines.

 

Overseas investors paid fixed rates in domestic swaps to protect their underlying holdings in US Treasuries, leading to longer-tenure OIS contracts rising, dealers said.

 

The five-year OIS jumped to a high of 7.32%, after opening at 7.20% today.

 

“Gilts are closely tracking every basis point of movement in the five-year OIS right now, which has also reversed due to offshore flows,” a dealer at a primary dealership said.

 

During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.56-7.62%. (Aaryan Khanna)

India Gilts:Give up gains as short sellers place bets before auction

 

 1245 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS6.54%, 2032PRICE (rupees)92.9593.2292.9593.1092.92YTM (%)      7.58737.54617.58737.56397.5921

 

NEW DELHI–1245 IST–Government bond prices gave up early gains as traders placed fresh short bets ahead of the 320-bln-rupee weekly gilt auction on Friday, dealers said.

 

The government has offered to sell 90 bln rupees of the new 2027 bond, 40 bln rupees of the 2028 floating rate bond, 100 bln rupees of the 7.54%, 2036 bond, and 90 bln rupees of the 6.99%, 2051 bond.

 

Bond prices rose earlier because of an overnight fall in US Treasury yields after the outcome of the Federal Open Market Committee meeting was on expected lines.

 

The US Federal Reserve raised the federal funds rate target range by 75 basis points to 1.50-1.75%, in-line with the market’s expectation. Fed officials said they expect to hike rates by 175 bps in the rest of the calendar year.

 

The yield on the 10-year benchmark US Treasury note fell 15 bps to settle at 3.30% on Wednesday and was near the 3.34% level today.

 

“The 5-year OIS (overnight indexed swap) has come up from day’s lows which is weighing on bonds,” a dealer at a primary dealership said. “Then there are also factors like short bets before auction Friday, slight rise in crude oil prices which have led to a fall in bond prices.” 

 

The 5-year overnight indexed swap rate was at 7.27%, sharply higher than today’s low of 7.20%.

 

During the day, yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.56-7.62%. (Shubham Rana)

India Gilts: Surge; US ylds slump after Fed policy on expected lines

 

 1000 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS6.54%, 2032PRICE (rupees)93.1293.2293.0993.1092.92YTM (%)      7.56087.54617.56557.56397.5921

 

NEW DELHI–1000 IST–Government bond prices surged tracking a slump in US Treasury yields after the outcome of the US Federal Open Market Committee meeting on Wednesday was on expected lines, with the policy panel hiking rates by 75 basis points, dealers said.

 

The yield on the 10-year benchmark US Treasury note slid 15 bps to settle at 3.30% on Wednesday.

 

Investors stepped up purchases at levels considered lucrative after uncertainties from macroeconomic data and the US policy outcome had passed, dealers said.

 

“For the first time in a while I have seen aggressive buying, which indicates someone bought at the level to stock up on portfolio,” a dealer at a state-owned bank said.

 

However, traders placed short bets as prices rose to make room for fresh supply ahead of the 320-bln-rupee weekly gilt auction, dealers said.

 

Dealers were also concerned that the sharp US rate hikes may force the Reserve Bank of India to hike rates sharply at its next policy review in August, limiting gains.

 

During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.53-7.60%.  (Aaryan Khanna)

India Gilts: Seen up tracking slump in US yields after FOMC outcome

 

NEW DELHI – Government bonds are seen opening higher tracking a fall in US Treasury yields after the US Federal Reserve’s rate decision was on expected lines and the policy panel refrained from accelerating quantitative tightening.

 

The US Federal Open Market Committee raised the federal funds rate target range by 75 basis points to 1.50-1.75%, in line with the market’s expectation, and Fed officials said they expect to hike rates by 175 bps in the rest of the calendar year.

 

The Fed’s massive rate hike did not come as a surprise to the market, which had feared the central bank would take more drastic steps to curb soaring prices. US CPI inflation unexpectedly surged to a fresh near 41-year high of 8.6% on year in May from 8.3% in April.

 

The yield on the 10-year benchmark US Treasury note slid 15 bps to settle at 3.30% on Wednesday. In Asian market hours today, the benchmark yield rose to 3.36%, remaining sharply lower than Wednesday’s levels, dealers said.

 

A fall in US Treasury yields widens the interest rate differential between the safe haven asset and emerging market debt, making the latter more appealing to foreign investors.

 

Consequently, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.54-7.64%, as against 7.59% on Wednesday.

 

Investors would look to step up purchases on gilts at attractive levels after the US rate decision, with the 10-year benchmark bond traded at levels last seen in February 2019, dealers said.

 

However, gains may be limited on caution before the 320-bln-rupee weekly gilt auction on Friday.

 

The government has offered to sell 90 bln rupees of the new 2027 gilt, 40 bln rupees of the 2028 floating rate bond, 100 bln rupees of the 7.54%, 2036 gilt, and 90 bln rupees of the 6.99%, 2051 gilt.  (Aaryan Khanna)

 

End

 

US$1 = 78.07 rupees

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

 

Edited by Tanima Banerjee

 

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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