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India Gilts Review:Off lows; 10-yr gilt up as demand firm at SDL sale

Informist, Tuesday, Jul 26, 2022

 

By Shubham Rana

 

NEW DELHI – Prices of government bonds settled off the day’s lows, and the 10-year benchmark 6.54%, 2032 bond rose as traders covered short bets on the back of firm demand at the state bond auction today, dealers said.

 

The 10-year 6.54%, 2032 bond settled at 94.43 rupees or 7.37% yield, against 94.27 rupees or 7.39% yield on Monday.

 

Today, the cut-off yields on states’ 10-year bonds were set in the range of 7.77-7.82%, against the estimates of 7.79-7.84% in an Informist poll.

 

Bond prices fell in early trade as traders placed short bets noting a rise in crude oil prices, dealers said. Crude oil prices rose over 1.5% today as Russian energy major Gazprom said it plans to reduce gas supplies to Europe.

 

Gazprom said it will reduce gas supplies through the Nord Stream 1 pipeline to Germany to just 20% of its capacity from Jul 27.

 

The Brent crude contract for September delivery rose to $107-a-barrel mark today, against $105.15 a bbl on Monday. Typically, a rise in crude oil prices increases the risk of imported inflation in India, putting pressure on Reserve Bank of India to withdraw monetary policy accommodation.

 

The 10-year 2032 gilt also rose because a large corporate house was seen stocking up on the gilt to hedge its fixed-rate liability on a bond issued today, dealers said. 

 

“There was one corporate that was buying bonds today, and also looking to receive fixed rate in the five-year OIS,” a dealer at a private bank said.

 

“While only the 10-year gilt rose today, other papers, too, recovered their losses tracking the benchmark bond and ended close to Monday’s levels.”

 

Market sentiment is seen positive currently as global factors have turned benign, and inflation concerns have eased with commodity prices coming down, dealers said.

 

Bond prices have risen for four trading sessions continuously, mainly because of benign global factors, even in the face of fresh supply on Friday.

 

“The inflation outlook is moderating and yields are trending down. As long as crude remains in a $4-5 range, it is not an additional cause for concern,” a dealer at a private bank said.

 

“Market will fundamentally decouple from these global factors because of the event risk,” the dealer said.

 

Reserve Bank of India Governor Shaktikanta Das said last week that inflation appears to have already peaked in India and has now started to moderate.

 

Members of RBI’s Monetary Policy Committee have also said in recent months that steps to rein in inflation must not sacrifice growth. 

 

Trade volumes were muted today as traders avoided aggressive bets on caution before the outcome of the US Federal Open Market Committee meeting, due after market hours on Wednesday.

 

According to data on RBI’s Negotiated Dealing System – Order Matching platform, the market-wide turnover was 263.45 bln rupees, compared with 318.25 bln rupees on Monday.

 

The Federal Reserve’s committee is expected to raise rates by 75 basis points, with some investors pegging a 100-bps increase as US CPI inflation has soared much above the Fed’s target.

 

According to the CME FedWatch tool, more than three-quarters of respondents expected a 75-basis-point increase at the outcome of the Fed’s two-day meeting on Wednesday. The remaining 24.9% anticipated a 100-bps rate hike. 

 

The US rate decision and commentary are expected to lend cues to Reserve Bank of India’s Monetary Policy Committee at its meeting next week. A higher-than-expected rate hike in the US and inflation concerns may push India’s rate-setting panel to hike rates more than the anticipated 50 basis points, dealers said.

 

The central bank may tighten monetary policy at a quicker pace to arrest capital outflows due to the widening interest rate differential between the two economies, dealers said.

 

OUTLOOK

On Wednesday, 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 ahead of the outcome of the US Federal Open Market Committee meeting, due after market hours on Wednesday.

 

The Federal Reserve 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 7.33-7.42%.

 

 

Today

Monday

Price

Yield

Price

Yield

5.74%, 2026

 95.2650

 7.0319%

 95.2500

 7.0354%

7.38%, 2027

 101.0600

 7.1173%

 101.0300

 7.1248%

7.10%, 2029

 99.0200

 7.2839%

 98.9200

 7.3030%

7.54%, 2036 99.6800 7.5759% 99.5700 7.5889%6.54%, 2032 94.4300 7.3668% 94.2675 7.3917%

India Gilts:Reverse losses as firm demand seen at state bond auction

 

 1313 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS6.54%, 2032PRICE (rupees)94.3494.3794.1394.1694.27YTM (%)      7.38107.37647.41387.40847.3917

 

NEW DELHI–1313 IST–Prices of government bonds reversed early losses with the 10-year benchmark 6.54%, 2032 bond rising marginally. Traders covered short bets as demand for the 10-year bonds was seen firm at the state bond auction today, dealers said.

 

Dealers said that there was good demand at the auction today, and they expected aggressive cut-offs to be set in the 10-year bonds, especially in the Gujarat paper.

 

Bond prices fell in early trade because of a rise in crude oil prices due to persistent supply concerns, and replacement demand to crude oil from natural gas in Europe as pipeline flows from Russia dwindled.

 

The Brent crude contract for September delivery rose to $107-a-barrel mark today, against $105.15 a bbl on Monday.

 

Even as crude oil prices remained near $107 a bbl, traders covered their bets as market sentiment is seen positive, dealers said.

 

“Crude is still near day’s high but bond prices have recovered, this shows that overall market is positive,” a dealer at a private bank said.

 

“Look at how much US yields have come down and crude is also much below than where it was a couple of months ago, inflation is seen moderating and even rate hikes are priced in.”

 

Bond yields have fallen for the last three trading sessions till Monday, mainly because of benign global factors, even in the face of fresh supply on Friday.

 

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

 

India Gilts:Down on rise in crude; caution before US Fed meet outcome

 

 0940 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS6.54%, 2032PRICE (rupees)94.1494.2294.1394.1694.27YTM (%)      7.41117.39917.41387.40847.3917

 

NEW DELHI–0940 IST–Government bond prices fell today, tracking a rise in prices of Brent crude, even as traders avoided large bets due to caution ahead of the outcome of the US Federal Open Market Committee’s meeting on Wednesday, dealers said.

 

Brent crude futures for September delivery rose 2% on Monday, and were nearly 1.5% higher in Asian trade today, due to fresh concerns of demand outstripping constrained supply, dealers said.

 

Going ahead, investors await commentary by the Federal Reserve on the trajectory of inflation and growth, limiting losses. The US rate decision is likely to influence the domestic monetary policy outcome next week, dealers said.

 

According to the CME FedWatch tool, more than three-quarters of respondents expected a 75-basis-point increase at the outcome of the Fed’s two-day meeting on Wednesday. The remaining 23.1% anticipated a 100-bps rate hike. 

 

The yield on the 10-year US Treasury note gave up overnight gains and failed to lend fresh cues to domestic bonds, dealers said.

 

“People will prefer to avoid fresh bets before the US policy outcome, which is the key mover this week, so intraday moves because of crude will not be too large,” a dealer at a private bank said.

 

“Positioning is also entrenched at these levels, and volatility in prices has been mitigated,” the dealer said.

 

During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.37-7.44%. (Aaryan Khanna)

India Gilts: Seen lower as crude, US yields rise; US Fed meet eyed

 

NEW DELHI – Government bond prices are seen lower today tracking a rise in crude oil prices and US Treasury yields. Traders may avoid large bets due to caution ahead of the US Federal Reserve’s policy outcome on Wednesday, dealers said.

 

Crude oil prices rose about 2% due to persistent supply concerns, and replacement demand to crude oil from natural gas in Europe as pipeline flows from Russia dwindled.

 

Brent crude for September delivery rose to $105.15 a bbl on Monday, and neared the $107-a-bbl mark in Asian trade today. Typically, a rise in crude oil prices increases the risk of imported inflation in India, putting pressure on the RBI to withdraw monetary policy accommodation.

 

US Treasury yields rose ahead of the outcome of the US Federal Open Market Committee’s meeting this week. The committee is expected to raise rates by 75 basis points, with some investors pegging a 100-bps increase as US CPI inflation has soared much above the Fed’s target.

 

The US rate decision and commentary are expected to lend cues to the Reserve Bank of India’s Monetary Policy Committee at its meeting next week. A higher-than-expected rate hike in the US and inflation concerns may push India’s rate-setting panel to hike rates more than the anticipated 50 basis points, dealers said.

 

The RBI may tighten monetary policy at a quicker pace to arrest capital outflows due to the widening interest rate differential between the two economies, dealers said.

 

The yield on the 10-year US Treasury note settled 3 bps higher at 2.81% on Monday. 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 yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.37-7.45%, as against 7.39% on Monday.  (Aaryan Khanna)

 

End

 

US$1 = 79.78 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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