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India Gilts Review: Off highs as crude oil, US yields reverse losses

Informist, Monday, Jul 25, 2022

 

By Shubham Rana

 

NEW DELHI – Prices of most government bonds ended off the day’s highs tracking crude oil prices and US Treasury yields, which rose today after falling sharply on Friday.

 

The 10-year benchmark 6.54%, 2032 bond settled at 94.27 rupees or 7.39% yield, against 94.12 rupees or 7.41% yield on Friday.

 

Bond prices rose sharply early in the day due to short covering by traders noting the fall in crude oil prices and US Treasury yields on Friday, said dealers.

 

Globally, investors avoided risky assets and moved to safe haven securities on Friday as weak economic data for July suggested a slowdown in developed countries because of aggressive monetary tightening.

 

Preliminary data released Friday showed a fall in purchasing managers’ index for July in the US, Germany and France.

 

Back home, investors booked profits in bonds noting a rise in crude oil prices and US Treasury yields, which led to fall in bond prices, dealers said.

 

Brent crude oil contract for September delivery surged to $104.57 a barrel at the end of Indian market hours from $101.64 a bbl earlier in the day despite fears about demand drying up because of monetary policy tightening by several countries.

 

Typically, rise in crude oil prices increases the risk of imported inflation as India is a major importer of the commodity. Rising inflation puts pressure on the Reserve Bank of India to withdraw monetary policy accommodation.

 

At the end of Indian market hours, yield on the 10-year benchmark US Treasury note rose 3 basis points from Friday’s close to 2.81%.

 

Yield on the 10-year benchmark US Treasury note had slumped on Friday due to demand for haven assets ahead of the US Federal Open Market Committee’s meeting outcome.

 

The US Fed’s rate-setting panel is expected to raise rates by 75 bps at the end of the policy review on Wednesday, with some investors betting on a hike of 100 bps.

 

Federal Reserve members have communicated in recent weeks that they prefer a 75-bps rate hike in this policy meeting, instead of a 100 bps one, even as inflation in US came in at 9.1% in June, a 40-year-high.

 

“There was profit booking as crude oil prices jumped sharply in the day,” said a dealer with a state-owned bank. “People don’t want to go into the FOMC with large open positions even if the outcome is heavily expected to be a 75 bps hike.”

 

Short-term dated securities came off highs and ended marginally lower, as the effect of the Fed rate hike is seen impacting such securities the most, dealers said.

 

“The five-year bond should remain steady till Wednesday and even till our own (RBI) policy in August,” said a dealer at a private bank. “The one-year, two-year and the five-year bonds will bear the brunt of the rate hike the most, so don’t expect the prices to rise sharply.”

 

According to data on RBI’s Negotiated Dealing System – Order Matching platform, the market-wide turnover was 318.25 bln rupees, compared with 331.40 bln rupees on Friday.

 

OUTLOOK

On Tuesday, government bond prices may open steady as dealers are likely to keep to the sidelines due to lack of significant domestic cues.

 

Dealers will remain cautious about placing large bets in the run-up to the US policy review.

 

The US Federal Open Market Committee is expected to raise interest rates by 75 bps at the meet.

 

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 7.35-7.45%.

 

 

Today

Friday

Price

Yield

Price

Yield

5.74%, 2026

 95.2500

 7.0354%

 95.2700

 7.0290%

7.38%, 2027

 101.0300

 7.1248%

 101.0500

 7.1201%

7.10%, 2029

 98.9200

 7.3030%

 98.8200

 7.3222%

7.54%, 2036 99.5700 7.5889% 99.3825 7.6111%6.54%, 2032 94.2675 7.3917% 94.1175 7.4147%

India Gilts: Sharply up as US ylds, crude fall; FOMC result eyed Wed

 

 1405 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS6.54%, 2032PRICE (rupees)94.3894.4994.2794.2794.12YTM (%)      7.37397.35747.39217.39137.4147

 

NEW DELHI–1405 IST–Government bond prices remained sharply higher, as traders covered short bets noting a fall in US Treasury yields and crude oil prices on Friday, dealers said.

 

After rising sharply in early trade because of global factors, prices traded in a narrow range, as traders avoided aggressive bets ahead of the US Federal Open Market Committee meeting outcome on Wednesday. 

 

“While it is a given that the US Federal Reserve will hike rates by 75 basis points this week, people will look at their commentary on the path of future rate hikes,” a dealer at a private bank said.

 

Fed members have communicated in recent weeks that they prefer a 75-bps rate hike in this policy meeting, instead of a 100 bps one, even as inflation in US came in at 9.1% in June, a 40-year-high.

 

The yield on the 10-year US Treasury note fell 13 bps to 2.78% on Friday, and stayed close to the same levels today, on the back of weak economic data, which increased fears of an economic slowdown.

 

The Brent crude contract for September delivery fell nearly 1% today to $101.64 a barrel, against $103.20 a bbl on Friday, on fears that an expected Fed rate hike would weaken fuel demand.

 

A fall in the 5-year overnight indexed swap to 6.40% also supported a rise in bond prices, dealers said.

 

During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.35-7.41%. (Shubham Rana)

India Gilts: Surge as US ylds, crude fall, demand firm at auction

 

 0925 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS6.54%, 2032PRICE (rupees)94.4094.4294.2794.2794.12YTM (%)      7.37127.36787.39217.39137.4147

 

NEW DELHI–0925 IST–Prices of government bonds rose tracking a slump in US Treasury yields and crude oil prices on Friday as investors globally avoided risky assets and moved to haven securities, dealers said.

 

Weak economic data in developed economies for July suggested a sluggish outlook for growth, particularly with sharp monetary policy tightening being pursued by central banks in the US and Europe.

 

The yield on the 10-year US Treasury note fell 13 bps to 2.78% on Friday. 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.

Meanwhile, Brent crude for September delivery also fell slightly, and traded under the key $103-a-bbl mark, buoying domestic gilts, dealers said.

 

Traders looked to cover their short bets as prices rose, while investors booked profits as the yield on the 10-year benchmark 6.54%, 2032 bond fell under 7.38%, dealers said. No further issuance is expected in the 10-year benchmark gilt as its outstanding approaches the Reserve Bank of India’s informal cap of 1.5 trln rupees,

 

Market sentiment was upbeat following firm demand at the 330-bln-rupee auction on Friday, which spurred short covering in the secondary market particularly in the 6.54%, 2032 bond, dealers said.

 

“The strong opening is because we’re looking at crude and US yields falling, and it looks like someone is pulling the market up with a big punt,” a dealer at a primary dealership said.

 

Gilt prices were aided by traders unwinding paid fixed rate positions in overnight indexed swaps, dealers said. The 5-year OIS fell 6 basis points to 6.43%.

 

Short sellers may place further bets on caution ahead of the outcome of the US Federal Open Market Committee’s meeting on Wednesday if the benchmark yield slumped to 7.35%, dealers said.

 

During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.35-7.43%. (Aaryan Khanna)

India Gilts: Seen up as US yields, oil prices fall on risk-off mood

 

NEW DELHI – Government bond prices may rise tracking US Treasury yields and crude oil prices, which fell on Friday as risk appetite took a hit following signs of weakening growth in developing economies, dealers said.

 

However, gains may be limited as traders had already stepped up purchases before the weekend as the global cues trended lower, dealers said.

 

The yield on the 10-year benchmark US Treasury note slumped more on Friday, after falling sharply Thursday, on haven demand, ahead of the US Federal Open Market Committee meeting outcome later this week.

 

Investors exercised caution after the European Central Bank hiked rates by 50 basis points last week, with rapid and coordinated rate hikes seen as a precursor to an economic slowdown and a possible recession.

 

Purchasing manager indices for July slipped into contraction in the US, Germany and France, according to preliminary data released Friday.

 

The yield on the 10-year benchmark US Treasury note fell to 2.78% on Friday.

 

Crude oil prices eased after the European Union tweaked sanctions against Russia to allow state-owned companies to ship crude to other nations outside the bloc.

 

Brent crude for September delivery fell 0.6% to $103.20-a-barrel on Friday, and further to $102.37-a-bbl in Asian trade today. Typically, a fall in crude oil prices decreases the risk of imported inflation in India, reducing pressure on the Reserve Bank of India to withdraw monetary policy accommodation.

 

Gilt prices may be aided on firm demand at the 330-bln-rupee weekly auction on Friday, which could lead traders to cover their short bets in the secondary market today, dealers said.

 

Moreover, the 10-year benchmark 6.54%, 2032 bond may find favour as it is not expected to be issued further as its outstanding approaches the Reserve Bank of India’s informal cap of 1.5 trln rupees, dealers said.

 

The yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.35-7.43%, as against 7.41% on Friday.  (Aaryan Khanna)

 

End

 

US$1 = 79.73 rupees

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

 

Edited by Ashish Shirke

 

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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