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India Gilts Review: Up as US yields fall, Dec CPI seen benign

Informist, Wednesday, Jan 11, 2023

 

By Aaryan Khanna and Anjali

 

MUMBAI – Government bond prices were up as US Treasury yields fell looking ahead to a benign CPI inflation print in the US for December, dealers said. Moreover, market expects domestic consumer inflation to remain under the key 6% mark in December. 

 

The 10-year benchmark 7.26%, 2032 bond ended at 99.78 rupees, or 7.29% yield, against 99.63 rupees, or 7.32% yield on Tuesday.

 

“The overall sentiment is quite positive from yesterday after the rupee appreciated,” a dealer at a primary dealership said. “Even both (US and India) expected CPI print added to it.”

 

The rupee surged against the dollar as foreign banks persistently sold dollars for foreign portfolio investors, dealers said. Today, the Indian currency settled at 81.5750 a dollar, against 81.7850 a dollar on Tuesday.

 

The yield on the benchmark 10-year US Treasury note fell by 3 basis points, after settling at 3.61% on Tuesday. On the US front, CPI inflation in December is seen at 6.5% compared with 7.1% in November, according to Reuters. Latest data also shows a slowing economy, making the case for the US Federal Reserve to slow rate hikes further, dealers said.

 

According to data from the CME Group’s Fedwatch tool, nearly 80% of futures traders see a 25-basis-point hike at the committee’s Feb 2 outcome, with the outliers expecting a 50-bps rate increase. In December, the Federal Open Market Committee had raised the policy rate by 50 bps.

 

The US CPI reading is key for India’s rate outlook as well. If the US does not opt to prolong its monetary policy tightening, the Reserve Bank of India may not act aggressive to withdraw accommodation domestically, dealers said.

 

“Yields (in Indian market) might cool off tomorrow (Thursday) as both inflation data are expected to be better,” a dealer at a state-owned bank said. “US CPI equally matters to India as the US yield and our yield movement has always been synced.”

 

India’s CPI inflation is seen at 5.9% in December, little changed from the 5.88% reading for November, according to an Informist poll. A second consecutive reading under 6% will firm up expectations of the domestic repo rate topping out at or under 6.50%, dealers said. Currently, the Monetary Policy Committee is seen hiking the repo rate by 25 bps to 6.50% when it meets on Feb 6-8, though some dealers have taken bets on a pause in rate hikes.

 

While headline retail inflation is seen benign, domestic traders remain wary of the core inflation reading for December. In November, core inflation was at 6.1%.

 

The market is focused on the trend in core inflation in December, which may determine the course of further monetary policy tightening despite not being the RBI’s inflation aim, dealers said. The core inflation rate is the price change of goods and services excluding food and energy prices which are volatile.

 

In the minutes of the December policy review, four Monetary Policy Committee members including Reserve Bank of India Governor Shaktikanta Das noted high core inflation. RBI Deputy Governor Michael Patra said a resolute policy response was needed to quell it.

 

Some traders initially booked profits in the 10-year 7.26%, 2032 bond as its yield fell under 7.30%, keeping prices capped, dealers said. The positive momentum was also hurt for a short span after the RBI set lower-than-expected cutoff prices for the 91-day Treasury bill at its auction, which may show liquidity tightness in some sections of the market, dealers said.

 

The RBI set a cutoff price of 98.4321 rupees, or 6.39% yield, on the 91-day T-bill, as against 98.4391 rupees, or 6.36% yield, pegged by an Informist poll of 15 bond dealers.

 

However, market sentiment was extremely robust and gilt prices rose further, with foreign banks speculated to be stocking up on the 10-year gilt even under 7.30% yield, dealers said.

 

According to data on the RBI’s Negotiated Dealing System – Order Matching platform, the turnover today was 453.00 bln rupees, compared with 322.25 bln rupees on Tuesday.

 

Meanwhile, trades aggregating 300 mln rupees were settled with the digital rupee pilot in six deals, compared with 450 mln rupees in seven deals on Tuesday.

 

OUTLOOK

On Thursday, bond prices are seen opening steady as traders may remain on the sidelines ahead of the release of CPI inflation data after market hours.

 

India’s CPI inflation is seen at 5.9% in December, little changed from the 5.88% reading for November, according to an Informist poll. Core inflation is expected to be sticky around 6% in the market, an area of concern after policymakers flagged price pressures from the segment in December.

 

The US CPI data, also after market hours Thursday, will lend cues to the rate outlook both in the US and India. A fall in US consumer inflation to 6.5% as expected is seen convincing the US Fed to ease its monetary tightening.

 

Consequently, it may put less pressure on the Monetary Policy Committee to raise the repo rate after February, dealers said.

 

They may also take cues from overnight movement in US Treasury yields and crude oil prices. 

Yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.25-7.33%.

 

 

Today

Tuesday

Price

Yield

Price

Yield

7.26%, 2032

99.77507.2913%99.62507.3133%

7.38%, 2027

100.85007.1513%100.77007.1727%7.10%, 202999.24757.2484%99.13007.2721%7.54%, 2036101.40007.3719%101.27007.3873%7.41%, 2036100.45007.3570%100.30007.3744%

India Gilts: Rise as US ylds fall; India, US CPI seen benign Thu

 1445 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS7.26%, 2032PRICE (rupees)99.7799.7899.5499.6099.63YTM (%)      7.29217.29137.32627.31747.3133

 

MUMBAI–1445 IST-—Government bond prices were up as US Treasury yields fell after an increase in demand for the US Treasury bonds in Europe, dealers said. Moreover, market expects the domestic as well as US inflation data to be benign which aided prices. 

 

The yield on the benchmark 10-year US Treasury note fell by 3 basis points, after settling at 3.61% on Tuesday.

 

“US and India inflation data is expected to come lower,” a dealer at a private bank said. “The US Federal Reserve might pause rate hikes quickly, potentially even after February, if inflation is reaching a level of control.”

 

CPI inflation for December in the US is seen at 6.5% compared with 7.1% in November, according to Reuters.

 

The US CPI reading is key for India’s rate outlook as well. If the US does not opt to prolong its monetary policy tightening, the Reserve Bank of India may not act aggressive to withdraw accommodation domestically, dealers said.

 

India’s CPI inflation is seen at 5.9% in December, little changed from the 5.88% reading for November, according to an Informist poll. A second consecutive reading under 6% will firm up expectations of the domestic repo rate topping out at or under 6.50% from the current 6.25%, dealers said.

 

The appreciation in the rupee against the dollar also contributed to keeping gilt prices up. The Indian currency rose further to 81.57 rupee per dollar after closing at a five-week high of 81.79 rupees a dollar on Tuesday.

 

Some traders booked profits at the 10-year 7.26%, 2032 bond as its yield fell under 7.30%, which capped gains, dealers said. The positive momentum was also hurt after the RBI set lower-than-expected cut-off prices for the 91-day Treasury bill at its auction, which may show liquidity tightness in some sections of the market, dealers said.

 

The RBI set the cut-off price at 98.4321 rupees or 6.39% yield on the 91-day T-bill, against 98.4391 rupees, or 6.36% yield, in an Informist poll of 15 bond dealers.

 

According to data on the RBI’s Negotiated Dealing System, Order Matching platform, the market-wide turnover was 376.50 bln rupees at 1445 IST, compared with 280.50 bln rupees at 1430 IST on Tuesday.

 

For the rest of the day, yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.26-7.34%. (Kasthuri Akhil)

India Gilts: Fall on rise in US yields but rupee’s gain limits losses

 

 

1025 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS7.26%, 2032PRICE (rupees)99.5599.6799.5499.6099.63YTM (%)      7.32517.30677.32627.31747.3133

 

MUMBAI–1025 IST–Prices of government bonds fell, tracking a rise in US Treasury yields on Wednesday after comments by a Federal Reserve official suggested persistent rate hikes in the US, dealers said. Traders avoided placing aggressive bets ahead of US and domestic inflation data on Thursday, dealers said.

 

The yield on the benchmark 10-year US Treasury note rose by 8 basis points to 3.61% on Tuesday as US Fed officials reiterated their intention to hike rates further despite incoming data showing a slowing economy.

 

Bond prices had traded in a thin band after the rupee appreciated sharply against the dollar. After closing at a five-week high on Tuesday, the rupee shot up nearly 0.2% against the greenback in early trade.

 

“The rise in US Treasury yields has been cancelled out by the strengthening of rupee,” a dealer at a state-owned bank said. “Everyone is looking forward to inflation data and then the Budget.” 

 

According to a poll by Informist, India’s retail inflation based on the CPI is likely to have been flat at 5.9% in December. A fall in food prices during the month is likely to have offset the statistical effect of a low base. The government is due to release CPI data for December at 1730 IST on Thursday.

 

US inflation data is expected to determine the pace of monetary policy tightening in both the US and India, as domestic policymakers may be wary of pausing rate hikes if the US continues, dealers said. The headline US CPI inflation print may moderate to 6.5% in December from 7.1% in November, according to Reuters.

 

According to data on the RBI’s Negotiated Dealing System, Order Matching platform, the market-wide turnover was 95.50 bln rupees at 1025 IST, compared with 71.10 bln rupees at 0930 IST on Tuesday.

 

Today, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.30-7.36%, as against 7.32% on Tuesday. (Anjali)

[I] India Gilts: Seen down tracking rise in US ylds; Dec CPI Thu awaited

 

MUMBAI – Government bond prices are seen opening lower tracking the rise in US Treasury yields after comments from a Federal Reserve official indicated rate hikes may continue to persist in the US, dealers said.

 

Today, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.30-7.36%, as against 7.32% on Tuesday.

 

Atlanta Fed President Raphael Bostic said interest rates should go above 5% and then remain stable at this level into 2024. He emphasised that the size of the rate hike would depend on the upcoming US inflation numbers. While the market gauged his comments, Bostic is not part of the Federal Open Market Committee this year and does not have a vote on policy.

 

The yield on the benchmark 10-year US Treasury note rose by 8 basis points to 3.61% on Tuesday. A rise in the 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.

 

Meanwhile, US Fed Chair Jerome Powell refrained from talking about monetary policy in a forum on the independence of central banks sponsored by the Swedish central bank on Tuesday. Powell said it was critical that the Fed retain the ability to manage inflation as it sees fit, raising interest rates to control price pressures even if that means slower growth and higher unemployment.

 

Traders are expected to remain on the sidelines ahead of the US and domestic inflation due on Thursday after market hours, dealers said.

 

According to an Informist poll, India’s retail inflation rate based on the CPI likely remained flat at 5.9% in December. A fall in food prices during the month is likely to offset the statistical effect of a low base.

 

Meanwhile, the headline US CPI inflation may moderate to 6.5% in December from 7.1% in November, according to Reuters.

 

The inflation print would give traders clarity regarding the strategy of the US and the domestic rate-setting panel, as both the policy reviews are due in February, dealers said.  (Nishat Anjum)

 

End

 

US$1 = 81.58 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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© Informist Media Pvt. Ltd. 2023. All rights reserved.

Source: Cogencis

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