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India Gilts Review:Yields down on value buying, index inclusion hopes

Informist, Tuesday, Sep 13, 2022

 

By Aaryan Khanna

 

NEW DELHI – Government bond yields slumped as investors stocked up on gilts at levels considered lucrative, with appetite firm due to hope of an imminent announcement of India’s sovereign bonds being added to the JPMorgan Global Bond Index – Emerging Markets, dealers said.

 

The most traded 6.54%, 2032 bond settled at 96.16 rupees, or 7.11% yield as against 95.68 rupees, or 7.18% yield on Monday. The 10-year benchmark 7.26%, 2032 bond closed at 101.27 rupees, or 7.08% yield as against 100.87 rupees, or 7.14% yield the previous day.

 

Gilt yields had risen for two straight days as traders trimmed their holdings and placed short bets due to caution ahead of the CPI inflation print for August.

 

However, retail inflation was largely in line with consensus estimates, prompting traders to cover their short bets, dealers said. In August, CPI inflation rose to 7.0% on year, against expectation of a 6.9% print, according to an Informist poll. 

 

Purchases were concentrated in on-the-run gilts of longer maturities, which are likely to be picked up by foreign investors as frontrunning begins after the announcement of index inclusion, dealers said.

 

In early trade, a large deal transacted in the 14-year benchmark 7.54%, 2036 bond boosted sentiment for long-term gilts and reversed early weakness, with the volatility further highlighted due to muted trade volumes near open, dealers said.

 

Investors chose to hold on to gains on the view that yields, particularly those of the 10- and 14-year benchmark papers, were likely to fall further with progress on index inclusion, dealers said.

 

“Yesterday was one of the rare days you could find sellers in the market. We are back to a situation where profit booking is unfavourable because we are so close to the index announcement, or at least that is what the market is positioning on,” a dealer at a primary dealership said.

 

Gilt yields had edged higher in early trade due to fear that the Reserve Bank of India’s Monetary Policy Committee may persist with aggressive rate hikes after the inflation reading hit the psychologically crucial 7% mark, dealers said. 

 

Short-term gilts remained out of favour, with their yields falling the least, even as the 10-year, 7.26%, 2032 bond’s spread over the five-year benchmark 7.38%, 2027 gilt narrowed to 11 bps today. 

 

Institutional investors remained tilted towards buying gilts maturing in 10 years or more, which prompted other market participants to follow suit, dealers said. Long-term gilts were favoured due to the large marked-to-market gains that could be earned on the back of the firm demand and falling yields, while gilts maturing in under five years remained policy-sensitive, dealers said.

 

So far, the RBI had not hinted at slowing down its policy tightening as it looks to tackle inflation and bring it back to its medium-term target band of 2-6%, even as some members of the rate-setting panel were wary of the impact of higher rates on growth, dealers said.

 

The Monetary Policy Committee is expected to hike the repo rate by 35-50 bps at its policy review on Sep 28-30, a view that has remained unchanged since the minutes of the August policy meeting were released, dealers said.

 

Investors may step up purchases in these underperforming gilts if the rate-setting panel suggests it will consider a pause in rate hikes, dealers said.

 

“The party’s in the longer end of the curve right now, let’s see when that ends, and we could have some interest in the shorter tenors, which haven’t gone anywhere,” a dealer at a private bank said.

 

According to data on the Reserve Bank of India’s Negotiated Dealing System – Order Matching platform, the market-wide turnover was 463.05 bln rupees, compared with 201.90 bln rupees on Monday.

 

OUTLOOK

On Wednesday, government bonds may open steady as traders may keep to the sidelines due to lack of significant domestic cues.

 

Dealers may take cues from the US CPI inflation print, due to be released after market hours today.

 

Investor appetite for bonds remains firm due to hope of India’s sovereign debt being included in global bond indices, with a potential announcement as early as this week, dealers said.

 

Any movement in US Treasury yields and crude oil prices may also lend cues at open.

 

The yield on the 10-year 6.54%, 2032 bond is seen at 7.07-7.15%. The yield on the new 10-year 7.26%, 2032 bond is seen at 7.04-7.12%.

 

 

Today

Monday

Price

Yield

Price

Yield

7.26%, 2032

 101.2700

 7.0789%

 100.8700

 7.1354%

7.38%, 2027

 101.6400

 6.9658%

 101.5250

 6.9945%

7.10%, 2029

 100.2650

 7.0472%

 100.0820

 7.0823%

7.54%, 2036 102.6300 7.2323% 101.9550 7.3098%6.54%, 2032 96.1600 7.1077% 95.6775 7.1811%

India Gilts: Remain up on index inclusion hopes, short covering

 

 1350 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS7.26%, 2032PRICE (rupees)101.23101.27100.85100.85100.87YTM (%)      7.08467.07897.13827.13827.1354

 

 1350 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS6.54%, 2032PRICE (rupees)96.0496.1095.6095.6095.68YTM (%)      7.12597.11687.19317.19317.1811

 

NEW DELHI–1350 IST–Prices of government bonds were up sharply as short sellers covered their bets after the CPI inflation print for August came on expected lines, dealers said. Appetite for dated securities was firm on expectations of an announcement on inclusion of India’s sovereign bonds on the JPMorgan Global Bond Index – Emerging Markets.

 

India’s retail inflation print for August stood at 7.00%, against expectations of 6.9%, according to an Informist poll. In July, CPI inflation was at a five-month low of 6.71%.

 

There was some uncertainty on when an announcement on bond index inclusion would come, with some hoping as early as this week, but traders were unwilling to unwind their bets as they expected JPMorgan would add Indian gilts in its September review, dealers said.

 

“People tried to place short bets in early trade but when prices didn’t fall sharply, they covered their bets,” a dealer at a private bank said. “Now, the market is just waiting for the bond index news announcements.”

 

In early trade, overseas investors had stepped up purchases in on-the-run gilts maturing in over 10 years, which buoyed sentiment and reversed losses, dealers said.

 

Some investors also stocked up on gilts after trimming their holdings on Monday due to caution ahead of the CPI print, dealers said.

 

Gilt prices may trade in a narrow band for the rest of the day, with some support from the rupee’s large gains against the dollar, dealers said. Traders also awaited the release of US CPI data for August, due after market hours today, for cues on the rate hike path the US Federal Reserve would take.

 

For the rest of the day, the yield on the most-traded 6.54%, 2032 bond is seen at 7.10-7.15%. The yield on the new 10-year 7.26%, 2032 bond is seen at 7.07-7.12%.  (Shubham Rana)

India Gilts: Jump on short covering as Aug CPI on expected lines

 

 0945 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS7.26%, 2032PRICE (rupees)101.18101.20100.85100.85100.87YTM (%)      7.09267.08887.13827.13827.1354

 

 0945 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS6.54%, 2032PRICE (rupees)95.8995.9495.6095.6095.68YTM (%)      7.14967.14127.19317.19317.1811

 

NEW DELHI–0945 IST–Government bond prices reversed early losses and rose as traders covered their short bets following the CPI inflation print for August, which was on expected lines, dealers said.

 

Retail inflation in August rose to 7.0% on year, against expectation of a 6.9% print, according to an Informist poll. In July, CPI inflation was at a five-month low of 6.71%.

 

Gilt prices had slipped in early trade on fears that the Reserve Bank of India’s Monetary Policy Committee may hike the repo rate by 50 basis points instead of 35 bps at its upcoming policy review on Sep 28-30.

 

However, traders had placed short bets ahead of the release and were covering those bets aggressively as investor appetite for gilts remained firm following the print, dealers said.

 

“People had positioned smartly before the print came out. The CPI inflation (number) is largely in line, so this would be short covering on overnight positions,” a dealer at a foreign bank said.

 

Dealers were upbeat that India’s dated securities may be announced for inclusion in JPMorgan’s Global Bond Index Emerging Markets as early as this week, which would alleviate pressure on a demand-supply mismatch and keep yields anchored.

 

After the initial flurry of trades, dealers expected volumes to settle down on caution ahead of the US CPI inflation print, due after market hours. Inflation in the US is expected to cool to 8.0% in August from 8.5% in July.

 

During the day, yield on the most-traded 6.54%, 2032 bond is seen at 7.13-7.20%. The yield on the new 10-year 7.26%, 2032 bond is seen at 7.07-7.14%.  (Aaryan Khanna)

India Gilts: Seen down after CPI print, at 7% in Aug, tops estimates

 

NEW DELHI – Prices of government bonds are seen opening lower today because CPI inflation for August came in higher than expected, at 7.00%, from a five-month low of 6.71% in July, according data released after market hours on Monday, dealers said.

 

Retail inflation was expected at 6.9%, according to an Informist poll of 22 economists.

 

Traders are likely to place short bets on the view that the Reserve Bank of India’s Monetary Policy Committee may hike the repo rate by 50 basis points instead of 35 bps at its upcoming policy review at the end of the month, dealers said.

 

However, investor appetite for gilts remains firm and traders may step up purchases should prices fall, thereby limiting losses, dealers said.

 

Dealers were upbeat that India’s dated securities may be announced for inclusion in JPMorgan’s Global Bond Index Emerging Markets as early as this week, which would alleviate pressure on a demand-supply mismatch and keep yields anchored.

 

Traders may also remain cautious in taking large bets ahead of the US CPI inflation print for August, due later today. Inflation in the US is expected to cool to 8.0% in August from 8.5% in July, according to median estimates from The Wall Street Journal.

 

Today, the yield on the most-traded 6.54%, 2032 bond is seen at 7.16-7.22% as against 7.18% on Monday. The yield on the new 10-year 7.26%, 2032 bond is seen at 7.12-7.18%, as against 7.14% previously.  (Aaryan Khanna)

 

End

 

US$1 = 79.15 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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