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India Gilts Review: Tad dn on short bets ahead of weekly auction Fri

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Informist, Thursday, Jan 5, 2023

 

By Kasthuri Akhil and Anjali

MUMBAI – Prices of government bonds ended slightly lower today as some traders placed short bets ahead of a 280-bln-rupee auction on Friday, dealers said. The 10-year benchmark bond moved in a narrow range of nine paise due to lack of significant domestic cues, dealers said. 

 

The 10-year benchmark 7.26%, 2032 bond ended at 99.53 rupees, or 7.33% yield, against 99.57 rupees, or 7.32% yield on Wednesday.

Traders did not pay much heed to the minutes of the Federal Open Market Committee’s December meeting, and US Treasury yields saw a muted reaction as well, as they were on expected lines, dealers said. The minutes showed that panel members were comfortable with smaller rate hikes going ahead, even as they were determined to bring down inflation to the Federal Open Market Committee’s target of 2%, dealers said.

 

Traders did not track crude oil prices as fuel prices in India have by far remained unaffected despite the fall in international crude oil prices, dealers said. The Brent crude contract for March delivery fell around 5% on Wednesday to $77.84 per barrel from Tuesday’s settlement due to worries of a global recession and rising COVID-19 cases in China.

 

Traders also remained on the sidelines ahead of the 280-bln-rupee weekly auction, with some making space for the 10-year benchmark gilt, dealers said. The government will 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 on Friday. 

 

“There is no fresh incentive for the market to bet on, the little selling that happened today was mostly because of the auction tomorrow (Friday),” a dealer at a private bank said. “People are mostly going short on the 10-year paper.”

 

Traders expect firm demand at the weekly auction, especially for the five-year paper, as the spread between the 2027 and 2032 papers has narrowed and traders see yields on the short-term paper as more lucrative, dealers said. “Banks are betting on the five-year paper and the auction will sail through at exactly the same level as today in this paper tomorrow (Friday),” a dealer at a primary dealership said.

 

Some dealers were of the view that gilt prices will continue to stay within a thin band unless significant domestic factors trigger some movement in the gilts market. The first advance estimate for India’s GDP growth in 2022-23 (Apr-Mar) is scheduled to be released on Friday and CPI inflation data for December is to be released on Jan 12. These data points are expected to determine the path the Reserve Bank of India’s Monetary Policy Committee will take with respect to policy rate. The next meeting of the MPC is scheduled for Feb 6-8. 

 

Yields are also expected to stay within a narrow band till the presentation of the Union Budget for 2023-24 (Apr-Mar), dealers said.

 

According to data on the RBI’s Negotiated Dealing System – Order Matching platform, the turnover today was 174.95 bln rupees, compared with 289.65 bln rupees on Wednesday.

 

Meanwhile, trades aggregating 400 mln rupees were settled with the digital rupee pilot in eight deals, compared with 200 mln rupees in four deals on Wednesday.

 

OUTLOOK

On Friday, bond prices are seen opening steady as traders may stay on the sidelines ahead of the 280-bln-rupee auction, 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 7.29-7.37%.

 

 

Today

 Wednesday

Price

Yield

Price

Yield

7.26%, 2032

99.53007.3271%99.57007.3212%

7.38%, 2027

100.55507.2307%100.56007.2295%7.10%, 202998.96757.3047%98.92007.3143%7.54%, 2036100.98007.4217%101.01007.4182%7.41%, 2036100.03007.4058%100.09007.3989%

India Gilts: In thin band on lack of domestic cues; Fri auction eyed

 

 1435 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS7.26%, 2032PRICE (rupees)99.5299.6099.5199.6099.57YTM (%)      7.32857.31687.33077.31687.3212

 

MUMBAI–1430 IST–Prices of government bonds remained in a thin band due to the lack of significant cues after the minutes of the US Federal Reserve’s December meeting came in largely along expected lines, dealers said.

 

US Treasury yields saw a muted reaction as the minutes reflected that panel members are comfortable with smaller rate hikes going ahead even as they remain determined to bring down inflation to the Federal Open Market Committee’s target of 2%, dealers said.

 

Meanwhile, the market didn’t take any cues from the fall in crude oil prices, dealers said. The Brent crude future for March delivery fell around 5% on Wednesday to $77.84 per barrel from Tuesday’s settlement due to worries of a global recession and rising COVID-19 cases in China.

 

“Even if crude is down, the price at the petrol pump remains the same,” a dealer at a state-owned bank said. “It will not make an impact on our CPI, that’s why no one is bothered by the fall.”

 

Traders also remained on the sidelines ahead of the 280-bln-rupee weekly auction, with some making space for the 10-year benchmark gilt, dealers said. The government will 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 on Friday.

 

Some dealers expect firm demand for the 2027 bond at the weekly auction, dealers said. The yield spread between the benchmark five- and 10-year paper narrowed to about 10 basis points, which is seen as an attractive level to stock up on the short-term paper, dealers said.

 

Moreover, banks may stock up on liquid short-term security to park an influx of liquidity in the last two days due to government spending, dealers said. Liquidity in the banking system is currently estimated to be in a surplus of 1.4 trln rupees, up from 740.59 bln rupees on Tuesday.

 

Both mutual funds and state-owned banks would be keen to buy the 2027 bond, dealers said. Meanwhile, traders would likely cover their short bets on the 7.26%, 2032 bond at the auction.

 

The volume of interbank repo trades in a given paper is a proxy for tracking the quantum of short bets, as overnight short sellers have to necessarily borrow the securities. The 10-year benchmark gilt saw trades worth 90.93 bln rupees on Clearcorp’s Repo Order Matching System today.

 

Further, the US non-farm payroll data for December, which is scheduled to be released on Friday, may not be a significant trigger for domestic gilts, dealers said. The data measures the number of workers in the US, excluding farm workers, some government workers, private households, proprietors, and non-profit employees.

 

The volume remained low as traders avoided aggressive bets ahead of the auction, dealers said. According to data on the RBI’s Negotiated Dealing System, Order Matching platform, the market-wide turnover was 129.70 bln rupees at 1430 IST, compared with 216.70 bln rupees at 1430 IST on Wednesday.

 

Today, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.29-7.35%. (Nishat Anjum)

India Gilts: Largely unchanged as Fed meet minutes on expected lines

 

 0930 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS7.26%, 2032PRICE (rupees)99.5699.6099.5599.6099.57YTM (%)      7.32277.31687.32387.31687.3212

 

MUMBAI–0930 IST-–Prices of government bonds were largely unchanged due to a lack of significant domestic cues as the minutes of the US Federal Reserve Open Market Committee’s December meeting were along expected lines, dealers said. 

 

“The FOMC members said what they were supposed to say,” a dealer at a primary dealership said. “We have much more important events coming up domestically.”

Traders looked past the sharp fall in US Treasury yields as they refrained from placing large bets ahead of a series of events important for the domestic market, dealers said. The yield on the benchmark 10-year treasury note fell by 10 basis points to 3.69% on Wednesday. US Treasury yields slumped due to uncertainty about policy rate narrative in the US amid mixed economic data. Minutes of the Federal Reserve’s meeting reflected that the members are comfortable with smaller rate hikes moving ahead. 

 

The market is expected to stay in a narrow range until the Union Budget for 2023-24 (Apr-Mar) is presented on Feb 1, dealers said. Traders also looked forward to 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. These data points are seen guiding the Reserve Bank of India’s course of monetary policy decisions, with the next policy committee meeting scheduled for Feb 6-8.

 

Moreover, the significant fall in crude oil prices was also not paid heed to, given the fall in international crude oil prices have not translated into domestic fuel prices, dealers said. The Brent crude contract for March delivery slipped over 5% on Wednesday to $77.84 per barrel from Tuesday’s settlement due to worries of a global recession and rising COVID-19 cases in China.

 

According to data on the RBI’s Negotiated Dealing System, Order Matching platform, the market-wide turnover was 19.00 bln rupees at 0930 IST, compared with 37.90 bln rupees at 0930 IST on Wednesday.

 

Today, the yield on the 10-year benchmark 7.26%, 2032 bond is seen in the range of 7.29-7.35%. (Kasthuri Akhil)

India Gilts: Seen steady as Fed’s Dec meet minutes on expected lines

 

MUMBAI – Government bond prices are seen opening steady on lack of significant domestic cues after the minutes of the US Federal Reserve Open Market Committee’s December meeting were along expected lines, dealers said. 

 

Today, yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.28-7.36%, as against 7.32% on Wednesday.

 

The market is expected to stay in a narrow range until the Union Budget for 2023-24 (Apr-Mar) is presented on Feb 1, and traders are expected to look past overseas cues, as has been the case for the past few days, dealers said. 

 

Domestic traders avoided placing large bets noting the fall in US Treasury yields and crude oil prices on Wednesday and a further overnight fall in crude oil prices might fail to impact the domestic market today, dealers said.

 

The yield on the benchmark 10-year US Treasury fell 10 basis points to 3.69% on Wednesday as investors weighed mixed economic data and the Federal Reserve’s December meeting minutes, which signalled that central bankers do not expect rate cuts this year. The minutes reflected that the Fed members are comfortable with smaller rate hikes moving ahead. 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.

 

Crude oil prices slipped over 5% on Wednesday due to worries of a global recession and a weak demand outlook amid rising COVID-19 cases in China. The rising cases also crushed hopes of China’s reopening anytime soon, which darkened the prospect of demand outlook for fuel. The Brent crude contract for March delivery fell to $77.84 per barrel on Wednesday against the previous close of $82.10 per bbl.

 

Traders now await the US non-farm payroll data for December, to be released on Friday after market hours, for fresh cues, dealers said. Domestically, traders are eyeing the December CPI print, due next week.

 

Traders may look to place short bets ahead of the weekly 280-bln-rupee auction Friday, 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 on Friday. (Anjali)

 

End

 

US$1 = 82.56 rupees

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

 

Edited by Avishek Dutta

 

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