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Thursday, October 6, 2022

India Gilts Review: Rise as US ylds, crude oil fall on slowdown fears

Informist, Tuesday, Aug 2, 2022

 

By Shubham Rana

 

NEW DELHI – Prices of government bonds closed sharply higher today, tracking a fall in US Treasury yields and crude oil prices on Monday after a slump in global manufacturing activity in July triggered fears of an economic slowdown, dealers said.

 

Today, the 10-year benchmark 6.54%, 2032 bond settled at 95.55 rupees or 7.20% yield, the lowest level since May 2. This compares with 95.26 rupees or 7.24% yield on Monday. 

 

Bond prices were also buoyed by upbeat market sentiment as short sellers covered their bets on hope Reserve Bank of India may signal moderation in pace of policy tightening on Friday.

 

The three-day Monetary Policy Committee meeting will start on Wednesday and a decision on policy rates will be announced on Friday.

 

The 10-year 6.54%, 2032 bond yield slipped 12 basis points over the past two days because of a fall in US Treasury yields and crude oil prices, and as expectations build up that the pace of rate hikes will moderate in India in the upcoming policy reviews, dealers said.

 

Crude oil prices slumped on Monday because of concerns over an impending economic downturn on the back of weak manufacturing data from the US, Europe, and China for July.

 

Brent crude for October delivery settled nearly 4% lower at $100.03 a barrel on Monday, and remained well below the key $100-a-bbl mark during Indian market hours today. Typically, a fall in crude oil prices decreases the risk of imported inflation in India, reducing pressure on Reserve Bank of India to withdraw monetary policy accommodation.

 

The yield on the 10-year benchmark US Treasury note also plunged by 7 basis points to 2.60% on Monday. Investors continued flocking to the haven asset today, pushing the benchmark yield lower to 2.55% by the end of Indian market hours.

 

“The rate hike bets have changed before policy this week,” a dealer at a state-owned bank said. “Moderating rate hike view, fall in US yields and crude, all these reasons are together leading this rise in gilts.”

 

In a poll by Informist, all 30 respondents expected the rate-setting panel to hike the repo rate, but the divide on quantum was clearly visible. While a dozen respondents expect repo rate to be hiked exactly by 50 bps, 11 see a hike by 35 bps, two by 25 bps, and one by 40 bps. The other four respondents gave a range for the hike–two of 35-50 bps, and one each of 25-35 bps and 40-50 bps.   

 

During the day, prices rose higher as short covering by investors offset a bout of profit booking seen earlier in the day, dealers said. 

 

Short sellers covered their long-held bets aggressively due to fears of an economic downturn, that led to a slump in US Treasury yields and crude oil prices on Monday. Brent crude for October delivery traded firmly under the key $100-a-bbl mark today.

Moreover, traders did not want to build up short bets despite the 330-bln-rupee weekly gilt auction Friday on caution ahead of Reserve Bank of India’s policy outcome, dealers said. 

 

The rise was limited in short term bonds today, particularly the five-year gilts, as traders booked profits with the yield on 7.38%, 2027 bond falling below the 6.90% level, dealers said.

 

“There was profit booking in the five-year bond today under the 6.90% level which limited a sharp rise,” a dealer at a private bank said. “The 7.38%, 2027 bond was up sharply on Monday, and may rise again on Wednesday if the overall market appetite is firm.”

 

According to data on the central bank’s Negotiated Dealing System – Order Matching platform, the market-wide turnover was 457.15 bln rupees, compared with 405.50 bln rupees on Monday.

 

OUTLOOK

On Wednesday, government bond prices are seen opening steady on caution ahead of Reserve Bank of India’s Monetary Policy Committee meeting outcome on Friday.

 

The rate-setting panel is expected to increase repo rate by 35-50 bps.

 

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

 

The yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.15-7.25%.

 

 

Today

Monday

Price

Yield

Price

Yield

5.74%, 2026

 95.8950

 6.8590%

 95.8800

 6.8626%

7.38%, 2027

 101.8100

 6.9337%

 101.7470

 6.9491%

7.10%, 2029

 99.9400

 7.1085%

 99.7800

 7.1389%

7.54%, 2036 101.0820 7.4115% 100.6600 7.4607%6.54%, 2032 95.5500 7.1962% 95.2600 7.2402%

 

India Gilts: Remain up as short covering offsets profit booking

 

  1250 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS6.54%, 2032PRICE (rupees)95.5495.6595.3595.6595.26YTM (%)      7.19777.18107.22667.18107.2402

 

NEW DELHI–1250 IST–Government bond prices were sharply higher as short covering by investors offset a bout of profit booking seen earlier in the day, dealers said. 

 

Traders covered their short bets on hopes that the Reserve Bank of India may signal that inflation had peaked and moderate the pace of policy tightening at the outcome of its monetary policy committee meeting on Friday, dealers said.

 

Short sellers covered their long-held bets aggressively due to fears of an economic downturn, that led to a slump in US Treasury yields and crude oil prices on Monday. Brent crude for October delivery traded firmly under the key $100-a-bbl mark today.

 

Moreover, traders did not want to build up short bets despite the 330-bln-rupee weekly gilt auction Friday on caution ahead of RBI’s policy outcome, dealers said.

 

“It is an unexpectedly volatile run-up to the policy outcome on Friday, but the common factor is that everyone is trying to get lighter and get rid of any deep positioning they have been holding as the trading range changes completely,” a dealer at a state-owned bank said.

 

Earlier, investors had booked profits noting the surge in gilt prices over the last two weeks, as the domestic rate view moderated ahead of the three-day policy review, dealers said.

 

The 10-year benchmark 6.54%, 2032 bond fell off highs briefly as dealers were wary of adding the gilt to their portfolios under the psychologically-crucial 7.20% yield. Trade volumes surged as the divergent views played out at the key level, dealers said.

 

During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.17-7.23%. (Aaryan Khanna)

India Gilts: Up on slump in US ylds, crude; traders book profits

 

 0925 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS6.54%, 2032PRICE (rupees)95.4895.6595.4495.6595.26YTM (%)      7.20687.18107.21297.18107.2402

 

NEW DELHI–0925 IST–Government bond prices jumped as US Treasury yields and Brent crude prices tumbled on Monday due to fears on a global economic downturn after data showed weaker manufacturing activity in July, dealers said.

 

Manufacturing purchasing managers’ indices in the US and eurozone came below expectations, while China’s factory activity contracted during July.

 

Brent crude for October delivery traded under the psychologically-crucial $100-a-bbl mark in Asian trade today. The yield on the 10-year US Treasury note has slumped over 12 bps this week on haven demand and bets that the US Federal Reserve will soften rate hikes.

 

The domestic rate hike view also eased as dealers expected the Reserve Bank of India to signal a slower pace of policy tightening at the policy outcome on Friday.

 

Traders booked profits as the yield on the 10-year 6.54%, 2032 bond fell under the key 7.20% mark after the recent surge in gilt prices, dealers said. The benchmark bond has risen 1.37 rupees in over eight straight sessions of gains.

 

“Short covering will offset a lot of the profit booking today, as (Brent) crude falling below $100 a bbl has a huge psychological effect and will keep (the 10-year yield) tethered around 7.20%,” a dealer at a foreign bank said. 

 

During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.18-7.25%. (Aaryan Khanna)

India Gilts: Seen up as US yields, crude slump; rate view benign

 

NEW DELHI – Government bond prices are seen sharply higher tracking a slump in US Treasury yields and crude oil prices on Monday as manufacturing activity across the world slumped in July, dealers said.

 

The yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.18-7.25%, as against 7.24% on Monday.

 

Crude oil prices slumped on Friday as weak manufacturing data in the US, Europe and China weighed on expectations for demand and added to economic downturn concerns.

 

The October Brent crude contract settled at $100.03 a barrel on Monday, and traded under $99 a bbl in Asian trade today.

 

The yield on the 10-year benchmark US Treasury note also plunged on Monday, down 7 basis points to 2.60%. Investors continued flocking to the haven asset in Asian trade today, pushing the benchmark yield lower at 2.55%.

 

The positive global cues are seen adding to the robust appetite for gilts in the domestic market as the Reserve Bank of India rate view softens, dealers said.

 

The Monetary Policy Committee is seen hiking the policy repo rate by 35-50 basis points at the policy outcome on Friday. After the meeting, the RBI is expected to outline a less aggressive path of policy tightening and signal that inflation had peaked, dealers said.

 

Gains may be capped as traders look to book profits noting the sharp rise in prices recently. The 10-year benchmark 6.54%, 2032 bond has risen for eight straight trading sessions, with its price jumping 1.37 rupees over the period.  (Aaryan Khanna)

 

End

 

US$1 = 78.71 rupees

 

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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