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India Gilts Review: Ylds jump to 2-week-high on Fed Powell’s comments

Informist, Thursday, Nov 3, 2022

 

By Shubham Rana

 

MUMBAI – Yields of government bonds jumped to a near two-week high today tracking the surge in US Treasury yields after US Federal Reserve Chair Jerome Powell indicated that the rate hike cycle in the world’s largest economy will be prolongeddealers said.

 

The 10-year benchmark 7.26%, 2032 bond closed at 98.46 rupees, or 7.48% yield, against 98.99 rupees, or 7.40% yield, on Wednesday.

 

Powell said that while the pace of rate hikes may be slower moving ahead, interest rates will be higher for a longer time than earlier expected.

 

Powell’s comments came after the US Federal Open Market Committee hiked the federal funds rate to a target range of 3.75-4.00% on Wednesday. This was the fourth straight rate increase of 75 basis points by the Fed, the fastest monetary tightening by the central bank in 40 years.

 

After Powell’s comments, the yield on the 10-year benchmark US Treasury note rose 6 basis points from Wednesday’s settlement to 4.16%. The yield on the 10-year note further jumped to 4.20% in European trade today.

 

Traders also placed short bets today to make space for the fresh 300-bln-rupee supply, dealers said. The government will 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.

 

“The 7.50% yield level on the 10-year gilt has been holding very strongly for some time now, but if US yields remain higher on Friday, then we can expect the yield to rise past 7.50%,” a dealer at a private bank said. “While the auction will sail through on Friday, I am not sure for how long state-owned banks will keep supporting these levels.”

 

Dealers were wary of stepping up gilt purchases as they assessed the guidance from the Fed and the impact it could have on domestic policy.

 

Traders are wary of the Reserve Bank of India being forced to hike rates sharply due to the Fed’s move, as they increased their rate hike expectations at the December Monetary Policy Committee meeting to 35-50 bps from 25-35 bps pegged earlier.

 

“There was pressure because of the auction as well, but not a lot as no one wants to go short at these levels. The main reason yields went up today was the rise in US yields,” a dealer at a state-owned bank said. “With Powell being so hawkish in his commentary, now the RBI is also seen hiking rates sharply.”

 

Volume was slightly higher today from Wednesday, but was still low as the domestic market lacked significant cues, dealers said.

 

According to data on RBI’s Negotiated Dealing System – Order Matching platform, the market-wide turnover was at 211.50 bln rupees, compared with 181.70 bln rupees on Wednesday.

 

Meanwhile, 2.00 bln rupees of trade was settled with the pilot digital rupee in 32 deals, against 2.90 bln rupees in 45 deals on Wednesday. The RBI launched its pilot for the digital currency in the wholesale segment on Tuesday, with banks trading government bonds in the secondary market through the digital rupee.

 

OUTLOOK

On Friday, gilt prices are seen opening lower as traders may make space for fresh 300-bln-rupee supply, dealers said. 

 

Traders may take cues from any sharp movement in the US Treasury yields and crude oil prices at open.

 

The yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.34-7.46%.

 

 

Today

Wednesday

Price

Yield

Price

Yield

7.26%, 2032

 98.4550

 7.4829%

 98.9900

 7.4044%

7.38%, 2027

 99.8150

 7.4246%

 100.2000

 7.3250%

7.10%, 2029

 98.0700

 7.4814%

 98.4700

 7.4013%

7.54%, 2036 99.5000 7.5989% 100.2300 7.5118%6.54%, 2032 93.5200 7.5264% 94.0875 7.4362%

India Gilts:Dn more post hawkish Fed Powell comments, rise in US ylds

 

 1500 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS7.26%, 2032PRICE (rupees)98.4598.7698.4398.7698.99YTM (%)      7.48377.43817.48667.43817.4044

 

MUMBAI–1500 IST–Prices of government bonds fell more because US Treasury yields surged as a corollary of US Federal Reserve Chair Jerome Powell’s hawkish comments after the US central bank’s policy outcome, dealers said.

 

The yield on the 10-year benchmark US Treasury note rose 6 basis points to 4.16% from Wednesday’s settlement.

 

Powell indicated that US rates might be higher for longer, even as the Fed may slow down its pace of rate hikes after four straight 75-basis-point rate increases.

 

“The 10-year US treasury yield is up and is the primary trigger which is pulling the gilt market down because of Federal Open Market Committee outcome,” a dealer at a state-owned bank said.

 

Dealers were wary of stepping up gilt purchases as they assessed the guidance from the Fed and the impact it could have on domestic policy. Traders fear the Reserve Bank of India may raise the repo rate more than the 35 basis points the market had previously expected in December, dealers said.

 

“We’re seeing an upward bias in yields and another 35-50 bps rate hike in December, and cost of funding is going up,” a dealer at a foreign bank said.

 

Traders also trimmed their bond holdings ahead of the 300-bln-rupee weekly gilt auction on Friday, dealers said. 

 

The government will 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.

 

For the rest of the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.43-7.51%.  (Kasthuri Akhil)

India Gilts: Slump as Fed Powell hints at prolonged rake hike cycle

 

 0955 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS7.26%, 2032PRICE (rupees)98.7098.7698.6698.7698.99YTM (%)      7.44737.43817.45287.43817.4044

 

MUMBAI–0955 IST–Prices of government bonds slumped today as the US Federal Reserve Chair Jerome Powell indicated that the rate hike cycle in the world’s largest economy will be prolongeddealers said.

 

The Fed raised the federal funds rate to a target range of 3.75-4.00% on Wednesday. This was the fourth time that the Fed increased the rates by 75 basis points, the fastest monetary tightening in 40 years.

 

“Market had accounted for 75 bps rate hike and traders were hoping that the Fed would pivot on their hawkish stance. But after Powell’s speech that seems unlikely,” a dealer at a state-owned bank said.

 

“The question of when to moderate the pace of increases is much less important than the question of how high … and how long to keep monetary policy restrictive,” Powell said at the press conference after the outcome of the Federal Open Market Committee’s meeting. 

 

Powell said it was too early to discuss when the Fed might pause its increases.

 

“After the comments by Powell, US Treasury yields have risen, similar impact is seen on OIS (overnight indexed swap) as well,” a dealer at a private bank said.

 

US Treasury yields surged after Powell’s comments with the yield on the benchmark 10-year note rising to 4.10%.

 

The one-year swap jumped 6 bps to 6.98% in early trade, while the five-year swap rose to 6.92%, 9 bps higher than Wednesday’s close.

 

With Fed now seen hiking rates for a longer time than earlier expected, traders fear the Reserve Bank of India may also be forced to hike rates sharply, dealers said.

 

Some traders have increased their rate hike expectations at the December Monetary Policy Committee meet to 35-50 bps from 25-35 bps earlier. 

 

Today, traders may also look to place fresh short bets ahead of the 300-bln-rupee weekly gilt auction on Friday, dealers said. 

 

The government will 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.

 

The fall in prices was limited as investors stepped up gilt purchases at levels considered lucrative, with the 10-year benchmark 7.26%, 2032 bond yield at 7.45%, dealers said.

 

During the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.40-7.47%. (Nishat Anjum and Shubham Rana)

India Gilts: Seen down as Fed Powell says interest rates to be higher

 

MUMBAI – Prices of government bonds are seen opening lower today as US Federal Reserve Chair Jerome Powell signalled higher US interest rates moving ahead but with smaller rate hikes, dealers said.

 

The Fed raised the federal funds rate to a target range of 3.75-4.00% on Wednesday, but hinted for the first time that it could consider slowing monetary policy tightening after its fourth straight rate increase of 75 basis points.

 

Today, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.38-7.47% as against 7.40% on Wednesday.

 

“The question of when to moderate the pace of increases is much less important than the question of how high … and how long to keep monetary policy restrictive,” Powell said at the press conference post the outcome of the US Federal Open Market Committee meeting.

 

Powell said that it was too early to discuss when the Fed might pause its increases.

 

US Treasury yields surged post Powell’s comments with the yield on the benchmark 10-year note rising to 4.10%. 

 

With Fed seen raising rates to levels higher than previously projected, traders fear the Reserve Bank of India may be forced to hike the policy rate sharply in December, dealers said.

 

Some dealers have increased their rate hike expectations at the December Monetary Policy Committee meet to 35-50 bps from 25-35 bps earlier. 

 

Domestic bonds are likely to track the movement in US Treasury yields throughout the day with today’s off-cycle Monetary Policy Committee meeting seen as a “non-event”, dealers said. 

 

The RBI’s rate setting panel is set to meet today to discuss the letter the central bank will send to the government explaining why it failed to keep inflation under 6% for three successive quarters. (Shubham Rana)

 

End

 

US$1 = 82.88 rupees

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

 

Edited by Tanima Banerjee

 

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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