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India Gilts Review: End sharply down before auction as US ylds surge

Informist, Thursday, Jul 7, 2022

 

By Shubham Rana

 

NEW DELHI – Government bonds closed sharply lower today because the yield on the 10-year benchmark US Treasury note surged past the key 2.95% level and as traders placed short bets ahead of the 330-bln-rupee auction on Friday, dealers said. 

 

The 10-year benchmark 6.54%, 2032 bond settled at 94.49 rupees, or 7.35% yield, as against 94.88 rupees, or 7.29% yield on Wednesday.

 

Bond prices reversed large gains from Wednesday as the rise in US Treasury yields led to a surge in overnight indexed swap rates.

 

The yield on the 10-year US Treasury note jumped 10 basis points to 2.92% on Wednesday as minutes of the US Federal Open Market Committee’s June meeting indicated that a rate hike of up to 75 basis points was imminent in the upcoming meeting at the end of this month. 

 

As the 10-year US Treasury yield topped the 2.95% yield, the five-year overnight indexed swap rate jumped to 6.74%.

 

Meanwhile, an overnight fall in crude oil prices limited losses in domestic bond prices, dealers said. 

 

Brent crude futures for September delivery fell around 2% on Wednesday to $100.69 a bbl due to concerns that a likely slowdown in the global economy would hurt energy demand.

 

“The market will keep on looking at movements in US yields and crude prices till we have cues to look at here in India,” a dealer at a state-owned bank said. “I think CPI data next week will be one such indicator, which may be positive for markets as it is expected to come below 7% in June.”

 

On the domestic front, traders trimmed bond holdings to make room for fresh supply on Friday. The government has offered to sell 40 bln rupees of the 6.69%, 2024 bond, 70 bln rupees of the 7.10%, 2029 bond, 130 bln rupees of the 6.54%, 2032 bond, and 90 bln rupees of the 6.95%, 2061 bond.

 

The market was also slightly aided by the measures announced by the Reserve Bank of India on Wednesday to exempt some limits for foreign inflows into debt portfolios, dealers said.

 

The central bank on Wednesday decided to include all new issuances of the seven-year and 14-year tenor gilts, including the current issuances of the 7.10%, 2029 and the 7.54%, 2036 gilt, as specified securities under the fully accessible route.

 

Currently, all central government securities with five-year, 10-year and 30-year tenors are categorised as “specified securities” under the fully accessible route.

 

However, some dealers are of the view that the measures taken to bring in foreign inflows may not work to a great extent as the current limits under the fully accessible route remain underutilised.

 

“What will the addition of seven-year and 14-year bonds (in the fully accessible route category) do when the current limits remain underutilised,” a dealer at a private bank said. “We didn’t see any real affect in the market today because of this.”

 

According to data on Reserve Bank of India’s Negotiated Dealing System – Order Matching platform, the market-wide turnover was 285.90 bln rupees, compared with 437.55 bln rupees on Wednesday.

 

OUTLOOK

On Friday, government bond prices are likely to open lower as traders may place short bets before the 330-bln-rupee weekly auction.

 

The government has offered to sell 40 bln rupees of the 6.69%, 2024 bond, 70 bln rupees of the 7.10%, 2029 bond, 130 bln rupees of the 6.54%, 2032 bond, and 90 bln rupees of the 6.95%, 2061 bond.

 

Any overnight movement in crude oil prices and US Treasury yields may also lend early cues to domestic bonds.

 

Yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.32-7.40%.

 

 

Today

Wednesday

Price

Yield

Price

Yield

5.63%, 2026

 95.5500

 6.9923%

 95.7050

 6.9426%

5.74%, 2026

 95.1100

 7.0617%

 95.3400

 6.9969%

6.67%, 2035

 93.2300

 7.4764%

 93.6475

 7.4244%

7.54%, 2036 100.0500 7.5326% 100.4700 7.4835%6.54%, 2032 94.4900 7.3543% 94.8800 7.2945%

India Gilts: Fall more as crude rises, 10-year US yield nears 2.95%

 

 1320 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS6.54% 2032PRICE (rupees)94.5994.9294.5394.8594.88YTM (%)      7.33907.28867.34827.29967.2945

 

NEW DELHI–1320 IST–Government bond prices fell further as yield on the 10-year benchmark US Treasury note neared the key 2.95% level and crude oil prices rose slightly from Wednesday’s close, dealers said.

 

Traders also placed fresh short bets ahead of the 330-bln-rupee auction on Friday, dealers said.

 

The government has offered to sell 40 bln rupees of the 6.69%, 2024 bond, 70 bln rupees of the 7.10%, 2029 bond, 130 bln rupees of the 6.54%, 2032 bond, and 90 bln rupees of the 6.95%, 2061 bond.

 

Bond prices fell initially due to a rise in overnight indexed swap rates, which were tracking a rise in US Treasury yields, dealers said.

 

The yield on the 10-year US Treasury note jumped 10 basis points to 2.92% on Wednesday as minutes of the US Federal Open Market Committee’s June meeting indicated that a rate hike of up to 75 basis points was imminent in the upcoming meeting at the end of this month. Consequently, the 5-year OIS rose 4 bps to 6.70%.

 

“People are seeing that Wednesday’s rise in prices was temporary,” a dealer at a state-owned bank said. “As long as we are tracking global cues, there will not be a sustained move in a single direction since global cues are also quite volatile.”

 

Brent crude futures for September delivery fell around 2% on Wednesday to $100.69 a bbl due to concerns that a likely slowdown in the global economy would hurt energy demand. However, Brent crude prices rose nearly $1 per bbl today, which further weighed on bond prices.

 

During the day, yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.29-7.36%. (Shubham Rana)

India Gilts:Dn as US ylds up; lower crude price, RBI steps limit fall

 

 

0955 IST

  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS6.54% 2032PRICE (rupees)94.7294.9294.7194.8594.88YTM (%)      7.31917.28867.32147.29967.2945

 

NEW DELHI–0955 IST–Government bond prices fell due to a rise in overnight indexed swap rates as US Treasury yields surged on Wednesday, dealers said.

 

The yield on the 10-year US Treasury note jumped 10 basis points to 2.92% on Wednesday as minutes of the US Federal Open Market Committee’s June meeting indicated that a rate hike of up to 75 basis points was imminent in the upcoming meeting at the end of this month. Consequently, the 5-year OIS rose 3 bps to 6.69%.

 

However, losses in gilts were limited as crude oil prices eased towards the key $100-a-barrel mark on Wednesday, but remained above $101 a bbl in Asian trade today.

 

The Reserve Bank of India’s measures on Wednesday to exempt some limits for foreign inflows into debt portfolios also aided prices today, dealers said. However, traders were concerned that the central bank may schedule its next policy review earlier to raise rates before the Fed and protect potential capital outflows.

 

The next meeting of the Monetary Policy Committee is scheduled on Aug 2-4, while the US rate-setting panel will make a decision after market hours on Jul 27.

 

“We are again tracking global cues today, which is influenced more by US yields after the minutes (of the US policy meet),” a dealer at a state-owned bank.

 

“As for the RBI’s announcement, the overall measure seem to be a small net positive, but the key outcome for gilts will be if they’ll push the Monetary Policy Committee meeting forward to before the Federal Open Market Committee,” the dealers said.

 

During the day, yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.27-7.34%.  (Aaryan Khanna)

India Gilts: Seen up on RBI’s measures to boost FX inflows

 

NEW DELHI – Government bond prices are seen higher as the Reserve Bank of India’s new measures to improve foreign exchange inflows may buoy demand for domestic gilts. Bonds may also rise tracking a fall in crude oil prices, dealers said.

 

Yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.25-7.34%, as against 7.29% on Wednesday.

 

The RBI on Wednesday decided to include all new issuances of the seven-year and 14-year tenor gilts, including the current issuances of the 7.10%, 2029 and the 7.54%, 2036 gilt, as specified securities under the fully accessible route.

 

Currently, all central government securities with five-year, 10-year and 30-year tenors are categorised as “specified securities” under the fully accessible route.

 

The central bank said the move would increase the choice of gilts available for investment by non-resident investors under the fully accessible route, and enhance liquidity across the yield curve.

 

Currently, foreign portfolio investors can invest in government securities and corporate bonds through three channels–the medium-term framework, the voluntary retention route, and the fully accessible route.

 

The central bank has exempted investments by FPIs in government securities and corporate debt made till October from the macro-prudential short-term limit. These investments will not be reckoned for the short-term limit till their maturity or sale.

 

In normal circumstances, FPI investment in government and corporate debt under the medium-term framework was subject to a macro-prudential short-term limit, which means not more than 30% of the investment each in government securities and corporate bonds can have residual maturity of less than a year.

 

Brent crude for September delivery fell about 2% on Wednesday to $100.69 a bbl as ongoing worries that a likely slowdown in the global economy would hurt energy demand.

 

However, a rise in the 10-year US Treasury yield by 10 basis points to 2.92% on Wednesday may limit gains as the minutes of the US Federal Open Market Committee June meeting indicated a 50- or 75-basis-point rate hike was imminent in the upcoming meeting, dealers said.  (Aaryan Khanna)

 

End

 

US$1 = 79.18 rupees

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

 

Edited by Deepshikha Bhardwaj

 

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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