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India Gilts Review:End down on profit booking ahead of Sep CPI print

Informist, Wednesday, Oct 12, 2022

 

By Aaryan Khanna

 

NEW DELHI – Government bond prices ended lower after reversing early gains, as traders were likely to have booked profits due to caution ahead of the release of the September CPI inflation print after market hours today, dealers said.

 

Today, the 10-year benchmark 7.26%, 2032 bond closed at 98.78 rupees, or 7.43% yield, as against 98.84 rupees, or 7.43% yield, on Tuesday. At the day’s high, the bond was at 99.25 rupees, or 7.37% yield.

 

Short sellers placed fresh bets as the 10-year benchmark yield fell to the psychologically-crucial 7.37% mark, which was considered lucrative for short bets, dealers said.

 

The price of the 10-year benchmark 7.26%, 2032 bond rose 34 paise to 98.84 rupees on Tuesday. The bond was buoyed by purchases by a transaction related to a corporate house looking to reduce its interest rate risk, dealers said.

 

The sharp rise in prices was contrary to the market view, particularly as the Reserve Bank of India was likely to fail in meeting its inflation management mandate after the September CPI print, dealers said.

 

According to a poll by Informist, India’s retail inflation rate is likely to have risen to a five-month high of 7.3% in September, pushing the average inflation in Jul-Sep to 7.0%.

 

According to the legal mandate, the RBI is considered to have failed to meet its target if average CPI inflation remains outside the target range of 2-6% for three consecutive quarters. CPI inflation was above 6.0% in Jan-Mar and Apr-Jun.

 

“The technical range is 7.37-7.52%, and the market is fluctuating within that,” a dealer at a primary dealership said. “These are very good levels to short (sell), so I would’ve been very surprised if it broke through the support before the CPI.”

 

However, government securities did not face further prices pressures as the high expected reading was already factored in, dealers said.

 

Gilts surged early in the day, taking cues from the five-year overnight indexed swap rate, which slumped to as low as 6.94% on the back of a drop in crude oil prices and receiving from domestic traders, dealers said.

 

The OIS contract erased its fall and ended unchanged from Tuesday’s close at 7.02% today, as oil prices also recovered by the end of the day, dealers said.

 

Traders trimmed their holdings, looking at fresh supply at the 300-bln-rupee weekly gilt auction on Friday. The government has offered to sell 40 bln rupees of the 6.69%, 2024 bond, 60 bln rupees of the 7.10%, 2029 bond, 110 bln rupees of the 7.54%, 2036 bond and 90 bln rupees of the 7.40%, 2062 bond this week.

 

Potential risks to India’s credit rating also dented market sentiment at the high price levels, dealers said. In a note on frequently asked questions, S&P Global Ratings today said higher-than-expected interest rates and CPI inflation might exert pressure pn India’s sovereign credit rating as it weighs on the country’s medium-term growth momentum.

 

“S&P has said that high interest rates and CPI inflation could impact India sovereign rating in the future, which had some impact on the market momentum after around 1300 IST,” a treasury head at a private bank said.

 

According to data on the RBI’s Negotiated Dealing System – Order Matching platform, the market-wide turnover stood at 251.25 bln rupees, compared with 300.90 bln rupees on Tuesday.

 

OUTLOOK

On Thursday, government bond prices are seen taking cues from India’s September CPI inflation print, after market hours today. Retail inflation in India is likely to have risen to a five-month high of 7.3% in September, resulting in failure to meet the RBI’s inflation mandate, according to the median of poll of 20 economists by Informist.

 

The government will announce data on inflation in September at 1730 IST, while inflation data for the US will be released on Thursday.

 

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

 

The yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.39-7.48%.

 

 

Today

Tuesday

Price

Yield

Price

Yield

7.26%, 2032

 98.7800

 7.4348%

 98.8425

 7.4257%

7.38%, 2027

 99.8800

 7.4067%

 99.9300

 7.3939%

7.10%, 2029

 98.2500

 7.4434%

 98.2500

 7.4434%

7.54%, 2036 100.1750 7.5178% 100.2500 7.5089%6.54%, 2032 93.8000 7.4775% 93.9300 7.4568%

India Gilts: Off highs on profit booking before Sep CPI print

 

 1450 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS7.26%, 2032PRICE (rupees)98.8599.2598.7898.7898.84YTM (%)      7.42467.36647.43487.43487.4257

 

NEW DELHI–1450 IST–Government bond prices were off highs as traders likely booked profits ahead of the September CPI inflation print, scheduled for release after market hours today, dealers said.

 

According to an Informist poll, India’s retail inflation rate is likely to rise to a five-month high of 7.3% in September. The reading would constitute a failure of the Reserve Bank of India’s inflation mandate.

 

The price of the 10-year benchmark 7.26%, 2032 bond rose 34 paise to 98.84 rupees on Tuesday.

 

“There’s a bit of confusion on why the market suddenly fell, since there are no immediate triggers,” a dealer at a state-owned bank said.

 

“We ourselves are going with the market and booking profits, the levels have still offered most traders a favourable exit after the gains yesterday (Tuesday).”

 

Short sellers also placed fresh bets as yield on the 10-year benchmark 7.26%, 2032 bond fell to the psychologically-crucial 7.37% mark, which was considered lucrative for short bets, dealers said.

Dealers say purchases from mutual funds had buoyed prices earlier.

 

Traders had also stepped up purchases taking cues from the five-year overnight index swap, which fell to as low as 6.94% earlier, dealers said. The contract recovered to above 7%, weighing on prices of dated securities.

 

Today, yield on the 7.26%, 2032 bond is seen at 7.37-7.48%.  (Aaryan Khanna)

India Gilts: Rise noting fall in 5-year swap; all eyes on CPI

 

 0950 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS7.26%, 2032PRICE (rupees)99.0299.1098.7898.7898.84YTM (%)      7.40067.38827.43487.43487.4257

 

NEW DELHI–0950 IST–Prices of government bonds rose in a volatile trade noting a fall in overnight indexed swap rates, dealers said. The yield on the 10-year 7.26%, 2032 bond fell to a one-week low today.

 

The five-year swap rate came down below 7% because of a fall in crude oil prices, dealers said.

 

Crude prices fell as an economic slowdown and a rise China’s COVID-19 cases heightened concern about global demand.

 

The Brent crude contract fell to $93.70 per barrel in the Asian trade today from Tuesday’s close of $94.29 per bbl. The contract ended at $96.19 on Monday

 

“Market is continuing Tuesday’s rise as no factor has turned averse overnight,” a dealer at a private bank said. “Traders may look to book profits later in the day ahead of CPI data, which is expected to rise.”

 

During the day, traders are expected to book profit after the rise in prices on caution before the CPI data. 

 

According to an Informist poll, India’s retail inflation rate is likely to rise to a five-month high of 7.3% in September.

 

The National Statistical Office is due to release inflation data for September at 1730 IST on Wednesday.

 

A reading above 6% in September would indicate that the RBI has failed in meeting India’s inflation mandate.

 

If the RBI fails to meet the inflation target, it will have to submit a report to the government explaining the reasons for the failure and proposed actions to bring inflation within the target.

 

Traders also await the US CPI, due on Thursday, and the release of the minutes of the US Fed’s September meeting, later today.

 

US CPI reading is expected to have a bearing on the Federal Reserve’s rate hike decision next month, and the Fed’s decision, in turn, is expected to influence the RBI’s rate decision, dealers said.

 

Today, the yield on the 7.26%, 2032 bond is seen at 7.38-7.48%. (Shubham Rana)

India Gilts: Seen steady as traders may maintain caution before CPI

 

NEW DELHI – Prices of government bonds are seen opening steady today as traders may stay on the sidelines due to caution ahead of the India CPI data, scheduled for release after market hours today, dealers said.

 

India’s retail inflation is likely to have risen to a five-month high of 7.3% in September, resulting in failure to meet the RBI’s inflation mandate, according to the median of an Informist poll of 20 economists.

 

The inflation print will be key for the market as a higher-than-expected number could push the Reserve Bank of India into raising interest rates sharply, dealers said.

 

Today, the yield on the 7.26%, 2032 bond is seen at 7.38-7.48% as against 7.43% on Tuesday.

 

Traders may also avoid placing large bets ahead of the US CPI data, due on Thursday. Retail inflation in the US is expected to rise at 8.1% in September. The US inflation data is also important for the domestic market as it would help assess Federal Reserve’s actions to control inflation moving ahead.

 

Investors also await the release of the minutes of the US Fed’s September meeting where the US central bank raised rates by 75 basis points, dealers said.

 

During the day, traders will also keep an eye on the movement in the overnight indexed swap rates, dealers said. On Tuesday, bond prices ended sharply higher, reversing early losses, as the five-year swap rate was off highs, dealers said. (Shubham Rana)

 

End

 

US$1 = 82.32 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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