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Wednesday, August 10, 2022

India Gilts Review: Off highs as oil recoups losses, but mood upbeat

Informist, Friday, Jul 1, 2022

 

By Pratigya Vajpayee

 

MUMBAI – Government bonds ended off the day’s highs tracking crude oil prices, which recouped some of their overnight losses. However, bonds managed to hold on to some gains as US Treasury yields fell sharply on Thursday, while oil prices remained well below Wednesday’s closing levels, dealers said.

 

The 10-year benchmark 6.54%, 2032 bond settled at 94.03 rupees or 7.42% yield, as against 93.86 rupees, or 7.45% yield on Thursday. Early in the day, the bond touched a high of 94.32 rupees or 7.38% yield.

 

Bond prices surged in early trade as the 10-year benchmark US Treasury yield fell 12 basis points to end below the psychologically-crucial 3% mark on Thursday. The fall in US bond yields came on the back of a lower-than-expected inflation print which made a case for a slower pace of rate hikes by the Federal Reserve.

 

Adding to the gains in domestic bonds, the near-month Brent crude oil futures contract also fell below a psychologically key level on Thursday, settling below the $110 per barrel mark.  

 

Sentiment for domestic bonds has improved since last week as concerns over a looming economic recession in the US has pulled down global commodity prices, which in turn would have a cooling effect on domestic inflation, dealers said.

 

The fall in commodity prices in recent weeks could reduce the extent to which the Reserve Bank of India hikes interest rates in coming months as inflation projections soften.

 

Moreover, a fall in Treasury yields widens the interest rate differential between India and the US, making Indian bonds a relatively more lucrative investment for foreign investors who have been pulling funds out of emerging markets for the last few months.

 

“There is a recalibration of interest rate expectations, the global environment has turned more conducive, and the mood shift has been playing out in levels as well,” a dealer with a private bank said. “Short positions have been covered, and a few players have also been looking to go long. However, traders are a bit skittish near current levels.”

 

During the day, the 10-year benchmark yield failed to sustain below the 7.40% mark, a level below which it has not closed since over a month. As yield on the 10-year paper slipped below this key level, bonds witnessed increased selling pressure as traders rushed to book profits.

 

The firm appetite for bonds was also reflected in the strong demand at the weekly gilt auction, dealers said.

 

The government today sold 90 bln rupees of the 7.38%, 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.

 

Although the RBI devolved 9.72 bln rupees worth of the 2028 bond on primary dealers, cutoff prices for all papers were set higher than those estimated by an Informist poll.

 

Trade volumes fell slightly, with the RBI’s Negotiated Dealing System – Order Matching platform showing a market-wide turnover of 245.35 bln rupees, compared with 290.55 bln rupees on Thursday.

 

The overnight fall in US Treasury yields and crude oil prices also pulled down overnight indexed swap rates, especially in the five-year segment, dealers said.

 

The one-year OIS rate ended at 6.32% as against 6.35%, while the five-year swap rate fell to 6.80% from its previous close of 6.88%.

 

OUTLOOK

Government bonds are not traded on Saturday.

 

Prices are likely to rise on Monday as underlying sentiment may be positive following strong demand at the auction today. Any movement in crude oil prices and US bond yields over the weekend may also lend early cues to domestic bonds.

 

During the day, bonds may trade in a narrow range in the likely absence of fresh cues. Traders may be wary of making large purchases if the 10-year benchmark bond yield slips below the 6.40% mark. 

 

Yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.39-7.45%.

 

 

Today

Thursday

Price

Yield

Price

Yield

5.63%, 2026

 95.2500

 7.0832%

95.1400

 7.1151%

5.74%, 2026

 94.8100

 7.0425%

94.6800

 7.1766%

6.67%, 2035

 92.6000

 7.5552%

 92.4500

 7.5739%

7.54%, 2036 99.4500 7.6034% 99.1800 7.6354%6.54%, 2032 94.0300 7.4241% 93.8600 7.4496%

India Gilts: Remain sharply up; volumes muted before auction result

 

  1255 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS6.54%, 2032PRICE (rupees)94.1994.3294.1094.1293.86YTM (%)      7.39957.37957.41337.41107.4496

 

 

NEW DELHI–1255 IST–Government bond prices rose sharply as crude oil futures fell more in Asian trade and US Treasury yields stayed below the crucial 3% mark, dealers said.

 

Trade volumes were muted as traders stayed on the sidelines as they await the result of the 320-bln-rupee auction, dealers said.

 

The government has offered to sell 90 bln rupees of the 7.38%, 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.

 

“There was decent bidding at the auction today,” a dealer at a state-owned bank said. “I think all papers will sail through other than the FRB, where there was less demand today.”

 

Brent crude for September delivery fell to $108-a-barrel mark, buoying domestic gilts, dealers said.

 

The yield on the benchmark 10-year US Treasury note fell under the key 3.00% mark on Thursday and slumped to 2.96% today. 

 

During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.37-7.46%. (Shubham Rana)

India Gilts: Surge on slump in US ylds, crude; auction result eyed

 

  0950 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS6.54%, 2032PRICE (rupees)94.1994.3294.1094.1293.86YTM (%)      7.39957.37957.41337.41107.4496

 

NEW DELHI–0950 IST–Government bond prices surged tracking an overnight slump in US Treasury yields and crude oil prices, dealers said. Gains were limited due to caution before the 320-bln-rupee weekly gilt auction.

 

The yield on the benchmark 10-year US Treasury note fell under the key 3.00% mark on Thursday and slumped to 2.96% in the Asian trade today. Brent crude for September delivery also traded below the psychologically-crucial $110-a-bbl mark, buoying domestic gilts, dealers said.

 

Traders covered their short bets as global cues turned positive but avoided aggressive moves ahead of the auction result, dealers said.

 

“There is going to be significant trader churn between 7.38-7.40% (yield on the 10-year benchmark paper). The auction should go through, but demand is stale, so there’s no breaking 7.38%,” a dealer at a primary dealership said.

 

The government has offered to sell 90 bln rupees of the 7.38%, 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.

 

Demand at the auction is uncertain as investors are seen seeking higher yields, with dated securities out of favour after the recent rise in prices on account of overseas triggers, dealers said.

 

The 10-year benchmark yield is trading 22 bps below the recent high of 7.62% in June.

 

During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.37-7.46%.  (Aaryan Khanna)

India Gilts: Seen up as crude, US ylds tumble; auction result eyed

 

NEW DELHI – Government bonds are seen opening higher tracking a sharp fall in US Treasury yields and crude oil prices, dealers said. The bonds will also take cues from the result of today’s 320-bln-rupee weekly gilt auction. 

 

Consequently, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.37-7.46%, as against 7.45% on Thursday.

 

The yield on the 10-year benchmark US Treasury note settled below 3.00% on Thursday after key inflation data came in lower than expected. The benchmark yield slumped 12 basis points to 2.98% on Thursday.

 

The US core personal consumption expenditures price index, the Federal Reserve’s preferred inflation measure, declined to 4.7% in May from 4.9% in Apr, the Commerce Department reported Thursday. The reading still remains at around levels last seen in the 1980s.

 

The index was expected to show a year-on-year increase of 4.8% for May, according to Dow Jones.

 

Moreover, crude prices fell over 3% on Thursday as concern about slowing economic growth outweighed a further tightening of supply amid the Russia-Ukraine war.

 

The Organization of the Petroleum Exporting Countries and its allies agreed to boost oil output on Thursday to raise their collective production by 648,000 barrels a day, endorsing a plan they announced earlier in June.

 

Brent crude for September delivery settled at $109.03 a bbl on Thursday, under the key $110 a bbl mark.

 

Tailwinds from global cues are expected to help the 320-bln rupee auction sail through, even as traders may avoid aggressive bets ahead of the result, dealers said.

 

The government has offered to sell 90 bln rupees of the 7.38%, 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.

 

Uncertainties are abound over the participation of state-owned banks at the auction after weak bidding for some papers in the previous week, dealers said.  (Aaryan Khanna)

 

End

 

US$1 = 79.0450 rupees

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

 

Edited by Aditya Sakorkar

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. 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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