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Tuesday, January 31, 2023

India Gilts Review: Flat on lack of domestic cues; FOMC minutes eyed

Informist, Wednesday, Jan 4, 2023

 

By Anjali and Kasthuri Akhil

 

MUMBAI – Government bond prices ended flat today on lack of significant domestic cues, dealers said. Traders looked past the fall in US Treasury yields and crude oil prices amid lack of clarity around the global growth outlook and its subsequent impact on the Indian economy, dealers said. 

The 10-year benchmark 7.26%, 2032 bond ended at 99.57 rupees, or 7.32% yield, unchanged from Tuesday’s close.

 

Traders avoided aggressive bets ahead of the first advance estimate for India’s GDP in 2022-23 (Apr-Mar) on Friday, and CPI inflation data for December on Jan 12, dealers said. The two data points are seen guiding the pace of the Reserve Bank of India’s pace of monetary policy tightening.

 

Traders also await the minutes of the US Federal Reserve Open Market Committee’s December meeting, which is to be released early Thursday, dealers said. “The minutes will decide the course of the market,” a dealer at another state-owned bank said. “Everybody is expecting slightly hawkish commentary from the Federal Reserve officials.”   

 

In addition, traders looked forward to other key US data releases scheduled this week, including US weekly initial unemployment claims and the non-farm payroll data for December, for fresh cues, dealers said. 

 

Gilt prices were a tad higher in early trade tracking an overnight fall in US Treasury yields, and rose at the beginning of European market hours after the yields on the haven asset fell further, dealers said.

 

The benchmark 10-year US Treasury yield slumped 9 basis points on Tuesday to close at 3.79% and fell further to 3.70% by the end of trading hours, dealers said. Gains were limited as the market had already factored in the US benchmark yield at 3.74% at the end of trading hours Tuesday, dealers said.

 

A fall in US Treasury yields widens the interest rate differential between the safe-haven asset and emerging market debt, making the latter more appealing to foreign investors.

 

“When (the 10-year) US yields rose from 3.40% to 3.86%, we only had a 7-8 bps reaction,” a dealer at a state-owned bank said. “Similarly, on the way down, the reaction should be limited and not more than 2 bps.”

 

Meanwhile, Brent crude for March delivery fell further to $80.47 per barrel by the end of the gilt trading hours, after falling nearly 4% to $82.10 per bbl on Tuesday.

 

The fall in crude oil prices did not have much of an impact on domestic bonds as the contract had remained within the $75-$85-a bbl band and had not translated into the prices of domestic automobile fuels, dealers said. Indian Oil Corp Ltd has kept retail prices of petrol and diesel unchanged since May, despite a fall in crude oil prices.

 

Some traders booked profits as the 10-year benchmark yield fell towards 7.30%, at which level further investor buys were scant in the face of upcoming data and the Union Budget on Feb 1, dealers said.

 

“After some selling by mutual funds, 10-year paper gave up whatever gains were there during the day,” a dealer at a primary dealership said. “Since then, market has been resilient at these levels.”

 

According to data on the RBI’s Negotiated Dealing System – Order Matching platform, the turnover today was 289.65 bln rupees, compared with 250.35 bln rupees on Tuesday.

 

Meanwhile, trades aggregating 200 mln rupees were settled with the digital rupee pilot in four deals, compared with 650 mln rupees in 11 deals on Tuesday.

 

OUTLOOK

On Thursday, bond prices may take cues from comments of Federal Open Market Committee officials in the minutes of the December US policy review, dealers said. 

 

The market expects commentary from the Fed officials leaning towards further rate hikes, dealers said.

 

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

The yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.28-7.36%.

 

 

Today

 Tuesday

Price

Yield

Price

Yield

7.26%, 2032

99.57007.3212%99.57007.3211%

7.38%, 2027

100.56007.2295%100.54007.2350%7.10%, 202998.92007.3143%98.94007.3101%7.54%, 2036101.01007.4182%101.00007.4195%6.54%, 203294.66757.3579%94.66007.3589%

India Gilts: In thin band; traders avoid bets on lack of domestic cues

 

 1305 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS7.26%, 2032PRICE (rupees)99.6099.6599.5599.6199.57YTM (%)      7.31647.30947.32417.31537.3211

 

MUMBAI–1305 IST–Prices of government bonds were in a thin band today as traders refrained from placing bets on lack of any significant cues in the domestic market, dealers said. 

 

Traders completely looked past the fall in crude oil prices and US Treasury yields, amid lack of clarity about global economic conditions. Moreover, gilts have moved in a narrow band, despite overseas volatility, as the view on domestic rate hikes and economy is unchanged since the latest round of data releases last week, dealers said.

 

“Traders are not taking any fresh positions, there are no cues domestically,” a dealer at a primary dealership said. “Now we hope Federal Open Market Committee (minutes) and US jobless claims tomorrow (Thursday) will give some guidance.”

 

The minutes of the US policy review in December are scheduled to be released early Thursday. Meanwhile, US weekly initial unemployment claims will be released after Indian market hours, and the non-farm payroll data for December is scheduled on Friday.

 

Prices were a tad up in early trade tracking the slight fall in US Treasury yields in Asian trade from Tuesday’s close. The yield on the benchmark 10-year US Treasury note was down by 6 basis points at 3.71% from Tuesday’s settlement. 

 

According to data on the RBI’s Negotiated Dealing System, Order Matching platform, the market-wide turnover was 132.45 bln rupees at 1305 IST, compared with 126.35 bln rupees at 1335 IST on Tuesday.

 

Today, yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.28-7.34%.  (Kasthuri Akhil)

India Gilts: Slightly up tracking fall in US yields, crude oil prices

 

 0945 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS7.26%, 2032PRICE (rupees)99.6199.6599.6099.6199.57YTM (%)      7.31537.30947.31677.31537.3211

 

MUMBAI–0945 IST–Prices of government bonds were slightly higher tracking a fall in US Treasury yields and crude oil prices, dealers said. Traders looked to overseas for cues due to a lack of fresh triggers in the domestic market.

 

The yield on the benchmark 10-year US Treasury slumped 9 basis points to 3.79% on Tuesday, and was at 3.73% today. The yield fell sharply as traders were concerned about rising uncertainty around growth in the US. Traders were also cautious ahead of the release of US economic data, including key non-farm payrolls for December, due this week.

 

“The yields on domestic bonds are following the same path as the US Treasury yields, the fall (in yields) was, hence, expected,” a dealer from a state-owned bank said.

 

However, the gains were limited as the 10-year US yield had already fallen to 3.74% at the end of gilt trading hours on Tuesday, with a large portion of the fall already factored in for domestic gilt prices, dealers said.

 

Meanwhile, crude oil prices also fell on Tuesday due to a weak demand outlook from China as data showed factory output moderated in December on account of the COVID-19 outbreak in the country. The Brent crude oil contract for March delivery fell to $82.10 per barrel on Tuesday from $85.91 per bbl on Friday. The contract did not settle on Monday as the US markets were closed on account of New Year.

 

However, the fall in crude prices did not have much of an impact due to the recent volatility, dealers said. Fears of imported inflation also did not ease due to fresh concerns of the rupee weakening further.
 

According to data on the RBI’s Negotiated Dealing System, Order Matching platform, the market-wide turnover was 37.90 bln rupees at 0945 IST, compared with 20.65 bln rupees at 0930 IST on Tuesday.

 

Today, the yield on the 10-year benchmark 7.26%, 2032 bond is seen in the range of 7.28-7.35%. (Kasthuri Akhil)

India Gilts: Seen up as US ylds, crude prices fall; rupee move eyed

 

MUMBAI – Government bond prices are seen opening higher today tracking a fall in US Treasury yields and crude oil prices, dealers said. 

 

Today, yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.28-7.34%, as against 7.32% on Tuesday.

 

The US Treasury yields fell sharply on Tuesday due to uncertainty about the growth outlook for 2023 ahead of US economic data releases this week, including key non-farm payrolls for December.

 

The yield on the benchmark 10-year US Treasury slumped 9 basis points to 3.79% on Tuesday, and was at 3.73% today. A fall in US Treasury yields widens the interest rate differential between the safe-haven asset and emerging market debt, making the latter more appealing to foreign investors.

 

Moreover, crude oil prices fell due to weak demand from China and the appreciation of the dollar against other currencies. The Brent crude oil contract for March delivery fell over 3.5% on Tuesday to settle at $82.10 per barrel.  

 

If the rupee depreciates further after Tuesday’s fall, gains in gilt prices will be limited, dealers said. On Tuesday, the rupee fell 0.2% to 82.88 rupees a dollar, its lowest closing level since Oct 19. 

 

Some traders are also cautious ahead of the US Federal Reserve’s December meeting minutes scheduled to be released early Thursday, dealers said.  (Anjali)

 

End

US$1 = 82.80 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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