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India Gilts Review: Jump in US yields pushes 10-yr yield to 4-mo-high

Informist, Friday, Oct 21, 2022

 

By Shubham Rana

 

NEW DELHI – Prices of government bonds slumped today, noting a surge in US Treasury yields that prompted traders to demand higher returns at the 280-bln-rupee weekly auction, dealers said. 

 

The 10-year benchmark 7.26%, 2032 bond closed at 98.26 rupees, or 7.51% yield, as against 98.50 rupees, or 7.48% yield, on Thursday. The yield on the 10-year benchmark bond ended above the key 7.50% mark for the time since Jun 17.

 

Traders trimmed their bond holdings to make room for the debt issuance, pulling prices lower ahead of the auction result. 

 

Traders then demanded higher yields at the auction today, where the government sold 70 bln rupees of the 7.38%, 2027 bond; 120 bln rupees of the 7.26%, 2032 bond; and 90 bln rupees of the 7.36%, 2052 bond.

 

While the 10-year 2032 bond recovered some losses as Reserve Bank of India set better-than-expected cut-off prices on the gilt, the cut-off price remained lower than the price of the bond in the secondary market, indicating investors demanded a premium to purchase the gilt, dealers said.

 

The auction cut-off was set at 98.18 rupees as against 98.11 rupees estimated in an Informist poll.

Meanwhile, the 7.38%, 2027 gilt was well bid at the auction as returns were similar to the 10-year gilt in a shorter maturity, dealers said. The five-year benchmark bond’s cut-off price was in line with market estimates.

 

Losses are seen limited in short-term gilts going forward due to the benign domestic rate view, dealers said.

 

“The 10-year came in better than estimates which also led to some short covering on the bond after the auction,” a dealer at a private bank said. “Demand remains muted, however, because of the truncated week ahead and US yields rising so sharply.”

 

The yield on the 10-year benchmark US Treasury note jumped 10 basis points to 4.24% on Thursday, and rose to as high as 4.28% during Indian trading hours today. These were the highest levels since the global financial crisis in 2008.

 

US yields rose on comments from US Federal Reserve officials during this week, which raised expectations that the US central bank would continue outpacing peers in tightening monetary policy. On Thursday, Philadelphia Federal Reserve President Patrick Harker said the US central bank was open to hiking policy rates “well above” 4.0% in 2022.

 

Appetite was also muted as traders avoided stocking up on gilts ahead of a curtailed week while global markets remain volatile and uncertain, dealers said.

 

Some traders were of the view that the yields should have risen more because of the rise in US Treasury yields over the past few days, dealers said.

 

“We were expecting the 10-year yield to top 7.55% today, but that did not happen as investors are still buying at current levels which is protecting the rise in yields,” a dealer at a state-owned bank said. “It is unlikely to rise sharply next week as there will be fewer participants and there is no gilts auction.” 

 

Indian financial markets will remain close on Monday and Wednesday next week for Diwali and Balipratipada, respectively, which is expected to keep trade volumes muted during the rest of the week. 

 

According to data on RBI’s Negotiated Dealing System – Order Matching platform, the market-wide turnover stood at 246.20 bln rupees, compared with 254.50 bln rupees on Thursday.

 

OUTLOOK

Government bonds are not traded on Saturdays. Indian financial markets will remain closed on Monday for Diwali.

 

On Tuesday, government bond prices may open steady as traders may keep to the sidelines amid a holiday-truncated week, dealers said. 

 

Traders may take cues from any sharp movement in US Treasury yields in the period when Indian market is closed.

 

Any movement in crude oil prices may also lend cues at open.

 

Yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.47-7.55%.

 

 

Today

Thursday

Price

Yield

Price

Yield

7.26%, 2032

 98.2550

 7.5121%

 98.4950

 7.4767%

7.38%, 2027

 99.7700

 7.4357%

 99.9250

 7.3955%

7.10%, 2029

 98.0700

 7.4808%

 98.2400

 7.4466%

7.54%, 2036 99.6500 7.5806% 99.9000 7.5507%6.54%, 2032 93.4175 7.5406% 93.6075 7.5096%

 

India Gilts: Remain down after muted appetite at weekly auction

 

 1355 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS7.26%, 2032PRICE (rupees)98.2698.3498.1298.3098.50YTM (%)      7.51147.49967.53167.50557.4767

 

India Gilts: Remain down after muted appetite at weekly auction

 

MUMBAI/NEW DELHI–1355 IST–Prices of government bonds remained down today, as the result of the 280-bln-rupee weekly auction reflected muted appetite, and on a sharp rise in US Treasury yields, dealers said. 

 

The government had offered to sell 70 bln rupees of the 7.38%, 2027 bond, 120 bln rupees of the 7.26%, 2032 bond, and 90 bln rupees of the 7.36%, 2052 bond at the auction.

 

The 10-year benchmark 7.26%, 2032 bond recovered some losses as the Reserve Bank of India set better-than-expected cutoff prices on the gilt, dealers said. The auction cutoff was set at 98.18 rupees as against 98.11 rupees estimated in an Informist poll.

 

However, the cutoff price remained lower than the price of the bond in the secondary market, indicating investors had demanded a premium to purchase the gilt, dealers said.

 

While the 2032 bond was seen out of favour among banks, the 7.38%, 2027 gilt was well bid at the auction due to similar returns in a shorter maturity, dealers said. The five-year benchmark bond’s cutoff price was in line with market estimates.

 

Losses are seen limited in short-term gilts going forward due to the benign domestic rate view, dealers said.

 

“The rise in US Treasury yields was sharper as compared to the India gilts as the minutes of the September Monetary Policy Committee (meeting) reflected that some members were seen uncomfortable with sharp rate increases,” a dealer at a primary dealership said.

 

The yield on the 10-year benchmark US Treasury note jumped 10 basis points to 4.24% on Thursday, and was at 4.27% during Indian market hours, reacting to comments from US Federal Reserve officials this week.

 

On Thursday, Philadelphia Federal Reserve President Patrick Harker said the US central bank was open to hiking policy rates “well above” 4.0% in 2022.

 

Ahead of a curtailed week for Diwali, bank trading rooms had thinned out, and traders may avoid stocking up on government securities after the auction result, dealers said.

 

During the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.48-7.55%.  (Anjali and Nishat Anjum)

India Gilts: Slump ahead of auction tracking rise in US yields

 

 0940 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS7.26%, 2032PRICE (rupees)98.2598.3098.1898.3098.50YTM (%)      7.51367.50557.52327.50557.4767

 

NEW DELHI–0940 IST–Prices of government bonds slumped tracking a rise in US Treasury yields, prompting traders to trim their gilt holdings ahead of the 280-bln-rupee weekly gilt auction, dealers said.

 

Comments from US Federal Reserve officials during this week raised expectations that the US central bank would continue outpacing peers in tightening monetary policy. On Thursday, Philadelphia Federal Reserve President Patrick Harker said the US central bank was open to hiking policy rates “well above” 4.0% in 2022.

 

The yield on the 10-year benchmark US Treasury note jumped 10 basis points to 4.24% on Thursday, and was up to 4.26% in Asian trade today. These were the highest levels since the global financial crisis in 2008.

 

Traders were looking to cover their short bets taken in the run-up to the auction at the debt sale, which may mop-up the supply even as investors are not keen on stocking up on gilts due to global uncertainties, dealers said.

 

“The auction should sail through, there are enough short bets going in that will look to cover ahead of the long weekend,” a dealer at a primary dealership said. “It’s just a question of how daring people want to be putting in bids beyond 7.52%.”

 

Money markets will be shut on Monday for Diwali.

 

Despite the sharp monetary policy tightening seen in the US, the benign domestic rate view after the minutes of the September Monetary Policy Committee meeting also kept losses restricted, dealers said.

 

During the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.48-7.55%.  (Aaryan Khanna)

India Gilts: Seen down as US yields jump, weekly auction in focus

 

NEW DELHI – Prices of government bonds are seen opening lower today, tracking an overnight rise in US Treasury yields, dealers said. Traders may make room for the 280-bln-rupee weekly auction, they said. 

 

Today, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.50-7.56% as against 7.48% on Thursday. 

 

Comments from US Federal Reserve officials earlier this week raised expectations that the US central bank would continue outpacing peers in tightening monetary policy.

 

On Thursday, Philadelphia Federal Reserve President Patrick Harker said the US central bank was open to hiking policy rates well beyond 4% in 2022, and hold them at restrictive levels in order to curb soaring inflation.

 

The yield on the 10-year benchmark US Treasury note surged 10 bps to 4.24% on Thursday, hitting levels last seen during the global financial crisis in 2008. 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.

 

Traders may place short bets in early trade, expecting to cover them at lower prices at the debt sale, dealers said. The government has offered to sell 70 bln rupees of the 7.38%, 2027 bond, 120 bln rupees of the 7.26%, 2032 bond, and 90 bln rupees of the 7.36%, 2052 bond.

 

While investor appetite has been firm in the secondary market as the 10-year benchmark yield has topped 7.50%, traders see the market seeking higher yields for the fresh issuance amid global uncertainties, dealers said.

 

Market participants will keenly watch the movement of the rupee for cues, with volatility in the exchange rate seen key to gauging the domestic rate view going ahead. On Thursday, the rupee rebounded by 52 paise and closed at 82.7600 per dollar, after hitting a record low of 83.2850 per dollar.  (Aaryan Khanna)

 

End

 

US$1 = 82.68 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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