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India Gilts Review: Rise as US ylds slump on softened rate hike view

Informist, Thursday, Dec 1, 2022

 

By Kasthuri Akhil

 

MUMBAI – Government bond prices ended sharply higher today tracking a plunge in US Treasury yields after Federal Reserve Chair Jerome Powell said the Fed may slow down the pace of rate hikes starting this month, according to dealers. 

 

The 10-year benchmark 7.26%, 2032 bond ended at 100.33 rupees, or 7.21% yield today, as against 99.85 rupees or 7.28% yield on Wednesday. The yield on the 10-year gilt ended at its lowest level since Sep 15.

 

US Treasury yields fell after Powell’s speech strengthened the market’s view that the US central bank would go easy with rate hikes, dealers said. The yield on the benchmark 10-year US Treasury note fell further to 3.63% at the end of Indian market hours today, after ending 7 basis points lower on Wednesday from 3.75% on Tuesday’s settlement.

 

Gilt prices also shot up as traders persistently covered their short bets after the yield on the benchmark 2032 bond fell below the key 7.25% level, dealers said. 

 

“Market opened positive in the morning after Powell’s comments,” a dealer at private bank said. “More buyers came in and pushed the bond prices higher as the yield on 10-year benchmark bond broke the 7.25% level after it remained sustained at the same level since the past three weeks nearly.” 

 

Volume was higher today as compared to Wednesday as traders rushed to cover short bets as soon as the yield on the benchmark 2032 bond broke the three-week monotony.

 

Trade volume jumped today after Powell’s comments lent positive cues to the domestic bond market which was in a narrow range in the past three weeks, dealers said.

 

Traders in the domestic market now expect a slower pace of rate hikes, taking into account factors that drive the rate hike decision by Reserve Bank of India’s rate setting panel, including the Fed’s rate hike view and the domestic inflation outlook, dealers said.

 

Traders now await the Reserve Bank of India Monetary Policy Committee meeting outcome on Dec 7.”The market is now awaiting the MPC meet decision. Until then buying of gilts will continue to persist,” a dealer at a state-owned bank said.

 

Traders expect firm demand at the weekly gilt auction on Friday as the overall market sentiment stayed positive today. The central 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 on Friday.

 

According to data on the RBI’s Negotiated Dealing System – Order Matching platform, the market-wide turnover was 504.60 bln rupees compared with 182.65 bln rupees on Wednesday.

 

Meanwhile, trades aggregating 2.10 bln rupees were settled with the digital rupee pilot in 18 deals compared with 2.95 bln rupees in 28 deals on Wednesday.

 

OUTLOOK

On Friday, bond prices are seen opening steady as traders may maintain caution ahead of the 300-bln-rupee auction.

 

Any significant movement in the 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 7.17-7.25%.

 

 

Today

Wednesday

Price

Yield

Price

Yield

7.26%, 2032

100.33257.2095%

 99.8475

 7.2798%

7.38%, 2027

101.19007.0681%

 100.9500

 7.1304%7.10%, 202999.47007.2028%

 99.1400

 7.2686%

7.54%, 2036101.85007.3213%101.2850 7.3875%6.54%, 203295.25007.2592% 94.8475 7.3222%

India Gilts: Surge on short covering as 10-yr yld falls below 7.25%

 

 1410 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS7.26%, 2032PRICE (rupees)100.35100.37100.02100.0599.85YTM (%)      7.20707.20417.25487.25047.2798

 

MUMBAI–1410 IST–Prices of government bonds climbed further as traders rushed to cover their short bets after the yield on the 10-year benchmark 7.26%, 2032 bond fell below 7.25%, dealers said.

 

Traders persistently bought gilts on the view that the Reserve Bank of India might slow its pace of rate hikes at its policy review meeting next week. The Monetary Policy Committee will detail its rate decision on Wednesday.

 

“This looks like short-covering now that the 10-year yield has broken 7.25%, which brings some direction to the market,” a dealer at a primary dealership said.

 

The Monetary Policy Committee’s rate-setting panel is expected to raise the repo rate by 25-35 basis points after three successive 50-bps rate hikes, dealers said. While a 35-bps increase was factored in gilt prices at 7.25% yield, traders are now placing bets that the yield may fall further if the committee opts for a 25-bps increase next week, dealers said.

 

The market was, however, not able to react to the positive cues as the 10-year gilt faced selling pressure at the psychologically-crucial level, dealers said. The positive cues included the sharp fall in US Treasury yields and the consequent heavy receiving of fixed rates in the overnight indexed swap market.

 

Some traders also speculated that purchases from mutual funds pushed gilt prices higher, dealers said.

 

“The factors that affect our market have been positive for some time now, including inflation coming down,” a dealer at a private bank said. “So today finally looks like the day when people are executing positions based on the better sentiment.”

 

The benchmark 10-year US Treasury yield fell further to 3.62% from 3.68% at Wednesday’s close. The yield fell as Federal Reserve Chairman Jerome Powell said that the central bank may slow its pace of policy rate hikes as early as Dec 13-14, when its next policy meeting is scheduled.

 

With the US rate view softening, the RBI would now have more room to opt for smaller rate hikes, dealers said. Some members of the Monetary Policy Committee have already expressed their discomfort with the sharp pace of monetary policy tightening so far.

 

According to data on the RBI’s Negotiated Dealing System – Order Matching platform, the market-wide turnover was 407.90 bln rupees at 1410 IST compared with 105.35 bln rupees at 1330 IST on Wednesday.

 

During the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.18-7.30%. (Kasthuri Akhil and Aaryan Khanna)

India Gilts: Surge as US yields slump on Fed Powell’s rate view

 

 1000 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS7.26%, 2032PRICE (rupees)100.05100.14100.02100.0599.85YTM (%)      7.25047.23817.25487.25047.2798

 

MUMBAI–1000 IST–Prices of government bonds were sharply higher as US Treasury yields slumped after Federal Reserve Chair Jerome Powell said the US central bank could soften its pace of rate hike as early as December, dealers said.

 

The yield on the 10-year benchmark US Treasury note slumped 7 basis points to 3.68% on Wednesday, and was at 3.62% in Asian trade today.

 

Powell said the time for moderating the Fed’s pace of rate increases may come as early as the December meeting as US rates approached the level of restraint after the aggressive rate increases in 2022. 

 

Analysts now expect a 50 bps rate increase at the meeting of the Federal Open Market Committee on Dec 13-14, after four successive 75-bps rate hikes in the US.

 

Consequently, the comments added to expectations of a 25-35 bps rate increase at the Monetary Policy Committee’s rate decision next Wednesday, dealers said.

 

Some traders booked profit as the yield on the 10-year benchmark 7.26%, 2032 bond fell below the key 7.25%-mark, at which point demand from investors had faded in recent weeks, dealers said.

 

“The bonds rallied after Powell’s comments, but this position is quite dicey,” a dealer at a state-owned bank said. “If these levels break, then it (the 10-year gilt yield) will go till 7.20%, otherwise would stay 7.25% above.”

 

On the domestic front, the India GDP data released, after market hours Wednesday, was well within the expected range and didn’t have much impact on bond prices, dealers said.

 

The growth in the Indian economy for Jul-Sep came at 6.3% as against 13.5% a quarter ago, primarily due to fading away of the favourable low base effect.

 

According to data on the Reserve Bank of India’s Negotiated Dealing System–Order Matching platform, the market-wide turnover at 1000 IST was at 100.55 bln rupees, compared with 37.90 bln rupees at 0955 IST on Wednesday.

 

During the day, yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.22-7.30%. (Nishat Anjum)

India Gilts: Seen up on slump in US yields after Fed Powell’s speech

 

NEW DELHI – Government bond prices are seen opening higher, taking cues from a sharp fall in US Treasury yields after Federal Reserve Chair Jerome Powell suggested a softer pace of US rate hikes as early as December, dealers said. 

 

Today, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.20-7.30% as against 7.28% on Wednesday.

 

“It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down,” Powell said. “The time for moderating the pace of rate increases may come as soon as the December meeting.”

 

However, he also said the Fed must raise rates enough to bring US CPI inflation down to 2%.

The Federal Open Market Committee has raised its policy rates by 375 basis points this year, including four straight hikes of 75 bps each. At its next policy review on Dec 13-14, analysts expect the US Fed to hike rates by 50 bps.

 

The yield on the 10-year benchmark US Treasury note slumped 7 bps to 3.68% on Wednesday, and was at 3.63% in Asian trade today.

 

Gains may be limited as the traders are seen booking profit as the yield on the 10-year benchmark 7.26%, 2032 bond falls below the key 7.25% mark, dealers said.

 

Moreover, the domestic GDP growth print, released after market hours on Wednesday, was on expected lines and lent no fresh cues to the market, dealers said.

 

The growth in Indian economy slowed to 6.3% in Jul-Sep from 13.5% a quarter ago, primarily due to fading away of the statistical effect of a low base.

 

The GDP growth for Jul-Sep is in line with the consensus estimate. According to an Informist poll, GDP was seen easing to 6.3% during the quarter. The Jul-Sep GDP growth is also in line with the Reserve Bank of India’s projection for the quarter.(Aaryan Khanna)

 

End

 

US$1 = 81.22 rupees

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

 

Edited by Aditya Sakorkar

 

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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