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India Gilts Review: End off lows as Brent crude retreats to $105/bbl

Informist, Monday, Jul 11, 2022

 

By Aaryan Khanna

 

NEW DELHI – Government bonds ended off lows as prices recovering, tracking a sharp intraday fall in Brent crude oil for September delivery to the key $105-a-bbl mark by the end of Indian market hours, dealers said.

 

The 10-year benchmark 6.54%, 2032 bond settled at 94.02 rupees, or 7.43% yield, against 94.10 rupees or 7.41% yield on Friday.

 

Crude prices fell today due to renewed concerns about curtailed demand as China reported an uptick in COVID-19 cases, raising fears of a fresh round of aggressive COVID-19 testing that may hurt consumer sentiment in the world’s second-largest economy.

 

The Brent crude contract had briefly slumped to as low as $104.08 a bbl today.

 

Meanwhile, some traders covered short bets as the 10-year benchmark yield slumped to the key 7.42% mark, and the 2032 bond remained just short of making a full recovery to the previous close, dealers said.

 

Investors had demanded higher yields at the 330-bln-rupee weekly gilt auction on Friday, weighing on prices and leading short sellers to book their gains today, dealers said.

 

“Prices have recovered on the back of crude coming back to $105-a-bbl, which is exactly what the Reserve Bank of India has projected for the year,” a dealer at a private bank said. “Pent-up market appetite seems to be satiated, so we might see a tail in auctions moving forward, but as usual this should start on Wednesday.”

 

Government bonds slid in early trade as crude prices jumped on Friday due to tightening supply of energy commodities, particularly in Europe, dealers said. The 10-year benchmark had slumped to as low as 93.71 rupees earlier.

 

The Brent crude contract for September delivery settled at $107.02 per barrel on Friday, but plunged nearly 2% today to trade near previous levels at the end of Indian market hours.

 

Moreover, the yield on the 10-year benchmark US Treasury note jumped 10 basis points to 3.09% after data showed a strong labour market in June, boosting expectations that the Federal Reserve will hike rates by another 75 basis points this month.

 

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

 

The Monetary Policy Committee is also expected to hike the policy repo rate by 50 bps at its August meeting to limit the interest rate differential and prevent capital outflows, as well as to cap domestic inflation, dealers said.

 

After the volatile movement during the day, traders avoided large bets due to caution ahead of the domestic CPI inflation print for June, scheduled for release after market hours on Tuesday, dealers said.

 

According to a poll of 19 economists by Informist, India’s retail inflation based on the Consumer Price Index is seen at 7.0% in June, flat from 7.04% in May, as duty cuts on several items may offset the impact of rise in prices of food and some other items.

 

“We have a trigger that is coming up domestically in CPI, which should be a comfort for the market, so a sharp fall was seen in only some quarters,” a dealer at a state-owned bank said.

 

According to data on the RBI’s Negotiated Dealing System – Order Matching platform, the market-wide turnover was 286.45 bln rupees, compared with 203.55 bln rupees on Friday.

 

INDEXED RATE SWAPS

Overnight indexed swap rates also ended off highs due to the fall in Brent crude prices today, after rising initially tracking adverse overseas cues, dealers said.

 

The one-year overnight indexed swap rate settled at 6.33%, against 6.31% on Friday, and the five-year swap rate fell to 6.72% from its previous close of 6.73%.

 

Earlier, the one-year swap had risen to 6.37%, while the five-year had surged to 6.80%.

 

Swap contracts maturing in under three months rose after Monetary Policy Committee external member Shashank Bhide reportedly called for front-loaded rate hikes. However, these gains were limited as the market had also anticipated a rate hike of 50 bps in August, dealers said.

 

“Bhide had made some comments on sharper rate hikes which had an initial impact on the market, but there are no reasonable concerns that the Monetary Policy Committee would hike the repo (rate) by more than 50 bps,” a dealer at a primary dealership said.

 

OUTLOOK

On Tuesday, government bond prices may open steady as traders remain cautious ahead of the release of June CPI inflation print after market hours.

 

India’s retail inflation is seen at 7.0% in June, steady against 7.04% in May, as duty cuts on several items may offset the impact of rise in prices of food and some other items, according to a poll by Informist.

 

Gilt prices may remain under pressure due to concern that investors’ bond portfolios may be nearing capacity, following muted demand for dated securities over the past two weekly gilt auctions, dealers said.

 

Overnight indexed swaps are seen steady due to lack of significant domestic cues on interest rates.

 

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

 

The yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.40-7.48%.

 

The swap rate in the one-year segment is seen at 6.10-6.45%, and the five-year at 6.55-6.80%.

 

 

Today

Friday

Price

Yield

Price

Yield

5.63%, 2026

 95.3500

 7.0592%

 95.3600

 7.0551%

5.74%, 2026

 94.8200

 7.1458%

 94.8800

 7.1282%

6.67%, 2035

 92.5225

 7.5656%

 92.6500

 7.5494%

7.54%, 2036 99.3500 7.6151% 99.5100 7.5961%6.54%, 2032 94.0200 7.4275% 94.1000 7.4149%

 

 

 

At 1530 IST

Friday

1-year OIS

6.33%

6.31%

2-year OIS

6.56%

6.56%

5-year OIS

6.72%

6.73%

2-year MIFOR

6.17-6.31%6.10-6.24%

5-year MIFOR

6.57-6.71%6.50-6.64%

 

 1310 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS6.54% 2032PRICE (rupees)94.0094.0093.7193.9094.10YTM (%)      7.43067.43067.47547.44607.4149

 

India Gilts: Off lows as US yields, crude prices slide from highs

 

NEW DELHI–1310 IST–Government bond prices were off lows after oil prices trimmed some gains, with Brent crude for September delivery under the key $106-a-barrel mark, dealers said.

 

On Friday, the contract had settled at $107.02 a bbl.

 

Moreover, the yield on the 10-year US Treasury note slipped to 3.06% from 3.10% earlier. The benchmark US yield had jumped 10 bps on Friday, which had dented sentiment for domestic gilts, dealers said.

 

“Everyone is closely tracking global cues. Even the rate hikes seem dependent on the situation outside, where the US stands and then crude prices towards the end of this month,” a dealer at a state-owned bank said.

 

Despite the recovery, bonds prices remained lower due to concerns that the US Federal Reserve will hike rates by another 75 basis points this month. Consequently, the Reserve Bank of India’s Monetary Policy Committee was also expected to hike rates by 50 bps in August, dealers said.

 

During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.42-7.48%.  (Aaryan Khanna)

India Gilts: Yields rise tracking jump in US yields, crude prices Fri

 

 0925 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS6.54% 2032PRICE (rupees)93.8793.9093.7993.9094.10YTM (%)      7.45107.44607.46307.44607.4149

 

NEW DELHI–0925 IST—-Yields on government bonds rose today tracking a surge in US Treasury yields and crude oil prices on Friday, dealers said.

 

The yield on the 10-year benchmark US Treasury note jumped to 3.09% on Friday after data showed a strong labour market in June, boosting expectations that the Federal Reserve will hike rates by another 75 basis points this month.

 

The Brent crude contract for September delivery rose to $107.02 per barrel on Friday from $104.65 per bbl on Thursday, which further supported domestic bond yields, dealers said.

 

“The yields have risen just as sharply as they fell last week,” a dealer at a state-owned bank said. “The fall in prices is limited today because of expectations that the CPI for June will come lower than previous months.”

 

According to an Informist poll of 19 economists, India’s retail inflation based on the Consumer Price Index is seen at 7.0% in June, flat from 7.04% in May, as duty cuts on several items may offset the impact of rise in prices of food and some other items.

 

The National Statistical Office is scheduled to release inflation data for June at 1730 IST on Tuesday.

 

During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.42-7.48%. (Shubham Rana)

India Gilts: Seen down as US yields, crude rise sharply on Friday

 

NEW DELHI – Prices of government bonds are seen opening lower today because of a sharp rise in US Treasury yields on Friday along with a rise in crude oil prices, dealers said.

 

The yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.38-7.48%, as against 7.41% on Friday.

 

US Treasury yields surged on Friday after data showed a strong labour market in June, boosting expectations that the Federal Reserve will hike rates by another 75 basis points this month.

 

Non-farm payrolls increased by 372,000 jobs in June, according to the US Labor Department’s employment report. Economists polled by Reuters had forecast addition of 268,000 jobs last month.

 

Investors have been increasingly concerned that aggressive rate hikes by the US central bank to curb inflation will tip the economy into a recession. Friday’s jobs figure showed that a slowdown is not apparent, at least in the near term.

 

The yield on the 10-year benchmark US Treasury note jumped to 3.09% after staying below the 3% level throughout the Indian trading session on Friday.

 

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

 

Crude oil prices ended higher on Friday, but logged a weekly loss as concerns over a global economic slowdown outweighed tight supplies of the commodity.

 

The Brent crude contract for September delivery rose to $107.02 per barrel on Friday against $104.65 per bbl on Thursday.

 

Back home, traders may exercise caution ahead of the June CPI release on Tuesday, dealers said.

 

According to an Informist poll of 19 economists, India’s retail inflation based on the Consumer Price Index is seen at 7.0% in June, flat from 7.04% in May, as duty cuts on several items may offset the impact of rise in prices of food and some other items. (Shubham Rana)

 

End

 

US$1 = 79.44 rupees

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

 

Edited by Avishek Dutta

 

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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© Informist Media Pvt. Ltd. 2022. All rights reserved.

Source: Cogencis

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