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Monday, November 28, 2022

India Gilts Review: Erase gains near close as OIS surges off lows

Informist, Monday, Sep 19, 2022

 

By Aaryan Khanna

 

NEW DELHI – Government bond prices erased gains towards the close of trade as the overnight indexed swap rates surged off lows, dealers said.

 

The most-traded 6.54%, 2032 bond settled at 95.06 rupees, or 7.28% yield as against 95.13 rupees, or 7.27%, on Friday. The 10-year benchmark 7.26%, 2032 bond closed at 100.16 rupees, or 7.24% yield, against 100.20 rupees, or 7.23%, the previous day.

 

Early in the day, OIS rates had fallen, with the one-year swap opening 5 basis points lower and the five-year swap rate opening 4 bps lower.

 

However, overseas traders paid fixed rates on caution ahead of the US Federal Reserve’s policy outcome this week, dealers said. Over the past week, the rise in OIS rates has weighed heavily on gilt prices.

 

The Fed is seen hiking its policy rate by at least 75 bps after the Federal Open Market Committee’s two-day meeting that ends on Wednesday, with futures showing an 18% chance of a full percentage point hike. 

 

Mutual funds are likely to have trimmed their gilt holdings and received fixed rates at lucrative levels due to the sharp rise, dealers said.

 

“The OIS rates are translating straightaway into gilt prices, mostly from overseas paying before the US Federal Reserve’s interest rate decision,” a dealer at a foreign bank said.

 

Short sellers covered their bets earlier in the day after the sharp fall in gilt prices over the past week. The 10-year benchmark 7.26%, 2032 bond had fallen 1.07 rupees between Tuesday and Friday.

 

Volumes were muted for a large part of the day due to a lack of significant domestic cues, dealers said.

 

Gains were capped as traders avoided aggressive bets, despite persistent hopes that global bond index providers would announce an inclusion of India’s sovereign debt on global platforms such as JPMorgan’s Global Bond Index – Emerging Markets, dealers said.

 

While investors had stocked up on gilts earlier this month, market sentiment had been dented due to a lack of further developments on the index inclusion front and the prospect of impending rate hikes, dealers said.

 

The Reserve Bank of India’s Monetary Policy Committee may also raise the repo rate by 50 bps rather than 35 bps if other central banks opt for sharper-than-expected rate hikes this week, dealers said.

 

Meanwhile, short-term gilts remained out of favour due to a tightening of excess liquidity in the banking system. The surplus liquidity has narrowed sharply due to outflows of advance tax payment for Jul-Sep, along with the Centre’s sluggish spending so far this year, dealers said.

 

The repayment of the 8.13%, 2022 gilt later this week is likely to be a minor reprieve, as the outflows on account of the goods and services tax payment would far outweigh the boost from the 450-bln-rupee repayment, dealers said.

 

“Mutual funds are facing redemption pressures, they have been trying to get their hands on liquidity from corporate bond sales, state loan sales, and gilts as well,” a dealer at a private sector bank said.

 

“The short end will continue to be beaten up as liquidity is considerably tighter, and goods and services tax outflows will kick in by the end of the week.”

 

According to data on the Reserve Bank of India’s Negotiated Dealing System – Order Matching platform, the market-wide turnover was 256.35 bln rupees, compared with 299.55 bln rupees on Friday.

 

INDEXED RATE SWAPS

Overnight indexed swap rates ended sharply off lows and ended higher as overseas traders paid fixed rates near the close on caution ahead of the US Federal Reserve’s policy decision on Wednesday, dealers said.

 

The one-year overnight indexed swap rate settled at 6.67% against 6.64% on Friday. The five-year swap rate closed at 6.64% against 6.62% the previous day.

 

Early in the day, OIS rates had fallen, with the one-year swap down to 6.58% and the five-year swap rate slumping to the same level.

 

Dealers were keen to receive fixed rates noting the sharp rise across swap rates over the past week. Moreover, the yield on the two-year US Treasury note, a policy-sensitive instrument, was steady on Friday, which was seen limiting overseas paying.

 

However, offshore inflows entered the market by the end of Indian market hours, ahead of the rate hike decisions in the US and the UK, dealers said.

 

Both central banks are expected to hike rates aggressively to curb soaring inflation, with fears of up to a 100-bps increase by the US Fed, dealers said.

 

“The domestic market is looking for ways to start squaring off their paid positions after the rise in rates, but overseas paying sunk that ship quite convincingly over the course of the day,” a dealer at a primary dealership said.

 

OUTLOOK

On Tuesday, government bonds and overnight indexed swap rates are seen steady as traders may stay on the sidelines ahead of the US Federal Reserve rate decision on Wednesday.

 

The US Federal Reserve is seen hiking its policy rate by at least 75 basis points after the Federal Open Market Committee’s two-day meeting ends on Wednesday, with futures showing about a fifth of traders betting on a full percentage point hike.

 

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

 

Yield on the most-traded 6.54%, 2032 bond is seen at 7.25-7.31%, and that on the 10-year benchmark 7.26%, 2032 bond at 7.21-7.27%.

 

The swap rate in the one-year segment is seen at 6.50-6.75%, and in the five-year segment at 6.50-6.75%.

 

 

Today

Friday

Price

Yield

Price

Yield

7.26%, 2032

 100.1600

 7.2359%

 100.1950

 7.2310%

7.38%, 2027

 100.6850

 7.2030%

 100.7350

 7.1906%

7.10%, 2029

 99.3250

 7.2291%

 99.3475

 7.2247%

7.54%, 2036 101.5500 7.3565% 101.6000 7.3507%6.54%, 2032 95.0600 7.2769% 95.1300 7.2660%

 

 

At 1530 IST

Friday

1-year OIS

6.67%

6.64%

2-year OIS

6.65%

6.63%

5-year OIS

6.64%

6.62%

2-year MIFOR

6.61-6.73%6.66-6.78%

5-year MIFOR

6.80-6.92%6.87-6.98%

India Gilts: Up on short covering; switch auction bids seen firm

 

 1225 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS7.26%, 2032PRICE (rupees)100.32100.44100.21100.21100.20YTM (%)      7.21317.19607.22887.22887.2310

 

 1225 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS6.54%, 2032PRICE (rupees)95.2595.3795.1795.1795.13YTM (%)      7.24767.22927.25997.25997.2660

 

NEW DELHI–1225 IST–Government bonds remained higher as traders covered their short bets after the recent fall in prices, dealers said.

 

Volumes were muted as traders avoided large bets due to a lack of significant domestic cues. Also, they were cautious ahead of key policy reviews around the globe this week. The US Federal Reserve is expected to hike rates by at least 75 basis points at its two-day meeting on Wednesday.

 

Meanwhile, some bonds at the switch auction today were well bid as traders were keen on booking profit on the source securities, dealers said.

 

The government had offered to switch five gilts worth 160 bln rupees with six bonds. The cut-offs on the 7.95%, 2032 bond, 7.57%, 2033 bond, 6.95%, 2061 were seen higher than Friday’s closing prices on the Financial Benchmarks India Pvt Ltd dealers said.

 

The cutoff prices on other bonds at the auction were seen similar to the closing prices on Financial Benchmarks India, dealers said.

 

“We could certainly see some interest from people offloading the floating rate bonds, even the destination securities are of a desirable tenure of 10 and 11 years,” a dealer at a state-owned bank said.

 

During the day, the yield on the most-traded 6.54%, 2032 bond is seen at 7.21-7.28%. The yield on the new 10-year 7.26%, 2032 bond is seen at 7.17-7.25%.  (Aaryan Khanna)

India Gilts: Rise on value buying; volumes muted ahead of rate moves

 

 0950 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS7.26%, 2032PRICE (rupees)100.38100.40100.21100.21100.20YTM (%)      7.20457.20177.22887.22887.2310

 

 0950 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS6.54%, 2032PRICE (rupees)95.3195.3495.1795.1795.13YTM (%)      7.23927.23387.25997.25997.2660

 

NEW DELHI–0950 IST—Prices of government bonds rose on value buying, while volume was muted as most traders kept to the sidelines due to caution ahead of key global policy decisions this week, dealers said.

 

Traders stepped up purchases noting the sharp fall in gilt prices last week, as well as an early slump in overnight indexed swap rates, dealers said. The one-year OIS rate fell 5 basis points to 6.59%.

 

Short sellers covered their bets after prices were resilient on Friday, even after the Reserve Bank of India devolved 28.13 bln rupees of the 6.69%, 2024 bond on underwriters, dealers said.

 

Moreover, appetite for gilts was firm due to hopes of an announcement for India’s sovereign debt to be included in JPMorgan’s index for emerging market government bonds, which was expected to drive large inflows from foreign investors, dealers said.

 

“The positivity may come in from the OIS side as the offshore market was lower, and swaps have really been driving the fall in government securities to a large extent,” a dealer at a private bank said. “I don’t think the market movement is representative yet since the volumes are really limited.”

 

Volumes were muted ahead of the US Federal Reserve’s policy outcome on Wednesday, and the Bank of England’s rate decision on Thursday. Both central banks are expected to hike rates aggressively to curb soaring inflation, dealers said.

 

Consequently, the RBI’s Monetary Policy Committee may also raise the repo rate by 50 bps rather than 35 bps, which weighed on sentiment for gilts and capped gains, dealers said.

 

During the day, the yield on the most-traded 6.54%, 2032 bond is seen at 7.21-7.28%. The yield on the new 10-year 7.26%, 2032 bond is seen at 7.17-7.25%.  (Aaryan Khanna)

India Gilts: Seen steady on caution ahead of key global rate moves

 

NEW DELHI – Government bond prices are seen steady today as traders may avoid large bets on caution ahead of policy decisions by some key central banks this week and the next, dealers said.

 

The US Federal Reserve is seen hiking its policy rate by at least 75 basis points after the Federal Open Market Committee’s two-day meeting that ends on Wednesday, with futures showing an 18% chance of a full percentage point hike.

 

Meanwhile, the Bank of England is also likely to hike rates by 50-75 bps on Thursday. The Bank of Japan is also scheduled to outline its policy decision on Friday.

 

The policy meetings have been in focus as they may influence the Reserve Bank of India’s Monetary Policy Committee meeting next week, at which the rate-setting panel is expected to hike the repo rate by 35-50 bps, dealers said.

 

Dealers said that a further rise in overnight indexed swap rates – which had weighed on gilt prices last week – was unlikely noting the sharp rise in swap rates across maturities. Moreover, the yield on the two-year US Treasury note, a policy-sensitive instrument, was steady on Friday, which may limit paying pressures from overseas traders.

 

Market appetite for gilts remains firm due to sustained hopes of India’s sovereign debt being included in the JPMorgan Global Bond Index – Emerging Markets. At the weekly auction on Friday, the central bank devolved 28.13 bln rupees of the 6.69%, 2024 bond on underwriters, but bond prices did not sink after the result.

 

Investor purchases are likely to limit losses, but traders may not make aggressive buys ahead of the rate decisions, dealers said.

 

Today, the yield on the most-traded 6.54%, 2032 bond is seen at 7.24-7.31%, against 7.27% on Friday. The yield on the new 10-year 7.26%, 2032 bond is seen at 7.20-7.28%, against 7.23% previously.  (Aaryan Khanna)

 

End

 

US$1 = 79.77 rupees

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

 

Edited by Michael Correya

 

 

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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