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Tuesday, January 31, 2023

India Gilts Review: Dn as US ylds, crude rise; caution before Budget

Informist, Monday, Jan 16, 2023

 

By Kasthuri Akhil

 

MUMBAI – Government bond prices ended lower today, tracking a rise in US Treasury yields and crude oil prices, dealers said. Some traders trimmed their holdings on caution ahead of Union Budget on Feb 1, they said. 

 

Today, the 10-year benchmark 7.26%, 2032 bond ended at 99.53 rupees, or 7.33% yield, against 99.72 rupees, or 7.30% yield on Friday.

 

The US Treasury yields rose on Friday as investors assessed the market’s eager bets that the US Federal Reserve will opt for interest rates cuts later this year. US CPI inflation fell to 6.5% year-on-year from 7.1% in November, in line with market expectations.

 

The yield on the benchmark 10-year US Treasury yield rose 6 basis points to 3.49% against Thursday’s close. A rise in 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. US financial markets were shut today to mark Martin Luther King day.

 

Meanwhile, crude oil prices rose on Friday, reaching the biggest weekly gains since October, as the dollar index fell to a seven-month low. Growing demand from the largest oil importer China also contributed to the rise in oil prices. The Brent crude contract for March delivery settled at $85.28 per barrel on Friday as compared to $84.03 per bbl on Thursday.

 

Domestic gilts traders took cues from overseas triggers due to a paucity of data in India ahead of the Union Budget for 2023-24 (Apr-Mar), dealers said.

 

Traders expect a higher borrowing number for the next fiscal and trimmed their holdings of longer-dated securities, dealers said. Preliminary market estimates showed the government would borrow around 16 trln rupees in the upcoming financial year, from the record high 14.21-trln-rupee borrow target this fiscal, dealers said.

 

“There might be some sell off in the 10-year paper as fiscal deficit is a concern,” a dealer at a private bank said.

 

The Centre’s fiscal deficit as a percentage of GDP may shrink to under 6% in 2023-24 from the 6.4% target this year, but traders were worried about additional spending in the run-up to the next general elections in 2024, dealers said.

 

Prices of the benchmark 10-year paper fell more as traders favoured short-term gilts, with the rate-hike cycle of Reserve Bank of India seen ending soon. Some traders also see rate cuts by fag end of the year, dealers said.

 

The Monetary Policy Committee is expected to hike the repo rate by 25 bps to 6.50% in February, to top off its 225 bps of rate hikes effected in 2022. 

 

“There is some value to be found in the two-five year segment, despite the commentary,” a dealer at a primary dealership said. “The fundamentals say that we are now as tight on monetary policy as we should be.”

 

However, the negative sentiment continued from Friday after core inflation was above 6% even though headline inflation cooled down to 5.72%, the lowest in 12 months. Reserve Bank of India Governor Shaktikanta Das comment that re-emphasised core inflation still being sticky and a matter of concern added to the worry over uncertainty of the central bank’s next rate hike move, dealers said. 

 

Comments by Reserve Bank of India Governor Shaktikanta Das on Friday on the still sticky core inflation as a discomfort and an area of concern for the central bank kept one section of the market wary. Core inflation inched up to 6.1% in December from 6.0% in November, even as headline retail inflation eased to a 12-month low of 5.72% in December.

 

According to data on the RBI’s Negotiated Dealing System – Order Matching platform, the turnover today was 239.00 bln rupees, compared with 397.85 bln rupees on Friday.

 

Meanwhile, trades aggregating 200 mln rupees were settled with the digital rupee pilot in four deals, compared with 250 mln rupees in five deals on Friday.

 

OUTLOOK

On Monday, bond prices are seen opening steady due to lack of significant domestic cues, dealers said.

 

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

The yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.29-7.37%.

 

 

Today

 Friday

Price

Yield

Price

Yield

7.26%, 2032

99.52507.3283%99.71507.3003%

7.38%, 2027

100.78257.1683%100.91757.1326%7.10%, 202999.13007.2724%99.28507.2410%7.54%, 2036101.31007.3823%101.44757.3662%7.41%, 2036100.29007.3753%100.45007.3568%

 

India Gilts: Remain down on surge in US ylds, crude; Budget in focus

 

 1350 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS7.26%, 2032PRICE (rupees)99.6099.6899.5699.6599.72YTM (%)      7.31727.30587.32397.30997.3003

 

MUMBAI–1350 IST–Government bond prices remained down tracking a rise in US Treasury yields and crude oil prices, dealers said. Traders avoided aggressive bets on overseas triggers as they looked ahead to the Union Budget to lend cues to the domestic market, dealers said.

 

Finance Minister Nirmala Sitharaman will present the Union Budget for 2023-24 (Apr-Mar) on Feb 1. The government will lay out its receipts, spending, India’s nominal GDP for the next financial year and its gross borrowing programme aim in the Budget.

 

Losses were limited in gilts maturing under five years, which were in favour with investors adding to their gilt portfolios due to the view that the Reserve Bank of India’s Monetary Policy Committee was likely to end its rate hikes in February. The rate-setting panel is seen hiking the repo rate by 25 basis points to 6.50% on Feb 8, which is fully priced in, dealers said.

 

Consequently, the demand for the 110-bln-rupee gilt switch auction was seen muted as returns on short-term papers were seen more lucrative compared to bonds of longer maturities, dealers said. A switch operation entails replacing a security maturing in the near term with a longer-maturity paper, effectively postponing the government’s debt repayment to a later date.

 

“There is nothing new in the market, just old US yields and crude,” a dealer at a private bank said. “There are no significant triggers at the moment.” 

 

The yield on the benchmark 10-year US Treasury note rose 6 basis points to 3.49% on Friday against Thursday’s close. Moreover, the Brent crude contract for March delivery rose over 1% on Friday to $85.28 per barrel due to increased demand from China, the world’s largest crude oil importer.

 

Some traders avoided large bets due to lack of significant domestic cues ahead of the Union Budget, dealers said.

 

According to data on the RBI’s Negotiated Dealing System–Order Matching platform, market-wide turnover was 147.60 bln rupees at 1350 IST, compared with 323.40 bln rupees at 1425 IST on Friday.

 

During the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.28-7.35%. (Anjali)

India Gilts: Down tracking rise in US yields, crude oil prices

 

 1010 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS7.26%, 2032PRICE (rupees)99.6299.6899.6099.6599.72YTM (%)      7.31397.30587.31727.30997.3003

 

MUMBAI–1010 IST–Government bond prices were down tracking a rise in US Treasury yields and crude oil prices, dealers said. Losses were restricted due to a lack of significant cues in the domestic market.

 

The yield on the benchmark 10-year US Treasury note rose by 6 basis points to 3.49% on Friday against Thursday’s close as traders assessed the outlook on the US Federal Reserve’s course of rate hikes. Fed funds rates traders are pricing in rate cuts later this year after the US inflation cooled in December at 6.5% against 7.1% in November.

 

Meanwhile, the Brent crude contract for March delivery rose to $85.28 per barrel compared with $84.03 per bbl on Thursday as the dollar index fell to a seven-month low. Growing demand from the largest oil importer China also supported the rise in prices.

 

Many dealers also attributed the fall in gilts as a result to Reserve Bank of India Governor Shaktikanta Das’s comment that re-emphasised core inflation still being sticky and a matter of grave concern for keeping inflation in check.

 

Today, the government will switch five gilts totalling 110 bln rupees with seven bonds through an auction from 1030 IST to 1130 IST. Some dealers were of the view that the switch gilt auction may not see firm demand as traders preferred to hold short-term gilts maturing in up to five years.

 

“Demand at the switch auction may be muted as people do not want duration papers as of now because they give comparatively lower yields than short-term papers,” a dealer at a private bank said.

 

The Reserve Bank of India’s rate hike cycle is expected to end soon after headline inflation prints for November and December were within the central bank’s medium-term target band of 2-6%. Meanwhile, demand from insurers and pension funds for long-term bonds was anchoring yields on long-term bonds, dealers said.

 

According to data on the RBI’s Negotiated Dealing System–Order Matching platform, market-wide turnover was 44.45 bln rupees at 1010 IST, compared with 68.30 bln rupees at 0930 IST on Friday.

 

During the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.28-7.35%. (Kasthuri Akhil)

India Gilts: Seen down on RBI Das remarks, rise in US yields, crude

 

MUMBAI – Government bond prices are seen opening lower tracking a rise in US treasury yields and crude oil prices, dealers said. Comments by the Reserve Bank of India Governor Shaktikanta Das on Friday on the still sticky core inflation may also weigh on gilt prices, dealers said.

 

Today, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.26-7.35%, as against 7.30% on Friday.

 

Das said that the central bank has not lost sight of the need to focus on inflation, while speaking at the Business Today Banking and Economy Summit. He also said core inflation at 6% is not comfortable to deal with, and was an area of concern for the central bank.

 

The US Treasury yields rose on Friday as investors hesitated on the market’s view that the US Federal Reserve will opt for interest rates cut later this year after a decline in the December US CPI data. The yield on the benchmark 10-year US Treasury yield rose 6 basis points to 3.49% against Thursday’s close. A rise in 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, crude oil prices rose on Friday, reaching the biggest weekly gains since October, as the dollar index fell to a seven-month low. Growing demand from the largest oil importer China also contributed to the rise in oil prices. The Brent crude contract for March delivery was at $85.28 per barrel as compared to $84.03 per bbl on Thursday.

 

Traders may avoid large bets due to a lack of significant domestic cues, as the market’s focus turns towards the Union Budget, dealers said. Finance Minister Nirmala Sitharaman will present the Union Budget for 2023-24 (Apr-Mar) on Feb 1.

 

Separately, the government will switch five gilts totalling 110 bln rupees with seven bonds through an auction today. (Nishat Anjum)

End

 

US$1 = 81.61 rupees

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

 

Edited by Vidhi Verma

 

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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