Home Commodity Market News India Gilts Review:10-yr yld ends at 11-wk high; auction demand weak

India Gilts Review:10-yr yld ends at 11-wk high; auction demand weak

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Informist, Friday, Jan 27, 2023

 

By Anjali

 

MUMBAI – The yield on the 10-year benchmark government bond ended at the highest level since Nov 7 because the Reserve Bank of India set lower-than-expected cut-off prices at the 300-bln-rupee auction, dealers said. Prices fell sharply in early trade as traders placed short bets ahead of the auction. 

 

The 10-year benchmark 7.26%, 2032 bond ended at 99.13 rupees, or 7.39% yield, against 99.40 rupees, or 7.35% yield on Wednesday. During the day, the yield on the 10-year bond rose to 7.40%, the highest intraday level since Nov 9.

 

Appetite for bonds was weak at the auction today because of caution ahead of the Union Budget. The demand for long-term papers was weak as traders hesitated to stock up due to fear of a higher borrowing figure in the Budget, dealers said.  

 

The government sold 40 bln rupees of the 6.89%, 2025 bond; 60 bln rupees of the 7.10%, 2029 bond; 110 bln rupees of the 7.41%, 2036 bond; and 90 bln rupees of the 7.40%, 2062 bond at the auction today. 

 

The RBI set the cut-off price on the 6.89%, 2025 bond at 99.78 rupees, against the expected 99.95 rupees, according to an Informist poll. The cut-off on the 7.40%, 2062 paper was set at 99.15 rupees as against the expected 99.23 rupees cut-off price in the poll.

 

Market participants expect the government to eclipse the record it set for 2022-23 (Apr-Mar) by announcing a borrowing programme of 15.8 trln rupees on a gross basis through dated securities, according to an Informist poll. For 2022-23, the government is scheduled to borrow 14.21 trln rupees through sale of dated securities.

 

Traders avoided placing aggressive bets at the auction due to a limited number of participants in the market owing to the Fixed Income Money Market and Derivatives Association of India’s ongoing conference in Dubai, dealers said.

 

Further fall was prevented as traders covered their short bets near the end of trade, dealers said. “The yield (on the 10-year paper) did not rise more than 7.40% because traders covered their short bets at the level,” a dealer at a state-owned bank said. The 7.40% yield is considered a physiologically crucial level.

 

Traders also eyed the US Federal Reserve Committee’s meeting scheduled to start on Tuesday. According to the CME FedWatch tool, 99.6% of futures traders expect the rate-setting panel to hike the federal funds target range by 25 basis points, with the outliers expecting a repeat of the 50-bps hike announced in December.

 

“There’s already low participation ahead of Budget, even the volumes are so low that even smaller bets are moving the market,” a dealer at a private bank said. “In the auction, traders placed bets very cautiously.”

 

The lack of participation hurt demand for the 6.89%, 2025 gilt at the auction, even as the domestic interest rate view remained unchanged, dealers said. The RBI’s Monetary Policy Committee is widely expected to hike the policy repo rate by 25 basis points to 6.50% at its upcoming decision on Feb 8.

 

Short-sellers piled on bets early in the day in liquid securities, and covered their short bets at the debt sale, which limited the fall in the 14-year benchmark 7.41%, 2036 bond after the results, dealers said.

 

The rise in US Treasury yields and crude oil prices further weighed on gilts today, dealers said. US Treasury yields rose after recent data showed resilience in the US economy, which may prompt the Fed to maintain its monetary policy stance to cool inflation. US GDP grew at a firm 2.9% in Oct-Dec, according to data released on Wednesday.

 

The yield on the benchmark 10-year US treasury note rose 3 bps to 3.49% on Thursday and further to 3.55% by the end of gilt market hours. 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, the Brent crude contract for March delivery rose about 2% on Thursday to $87.47 per barrel and was at $88.51 per bbl by the end of market hours due to expectations of strengthening global demand as the world’s largest oil importer, China, reopens its economy. Faster-than-expected growth in the US economy in Oct-Dec also added to demand expectations.

 

According to data on the RBI’s Negotiated Dealing System – Order Matching platform, the turnover today was 210.25 bln rupees, compared with 226.00 bln rupees on Wednesday.

 

Meanwhile, no trades were settled today with the digital rupee pilot. On Wednesday, trades aggregating 500 mln rupees were settled in 10 deals.

 

OUTLOOK

Gilts are not traded on Saturdays.

 

On Monday, bond prices are seen steady as traders may stay on the sidelines due to lack of firm domestic cues before the Union Budget, dealers said.

 

Finance Minister Nirmala Sitharaman will present the Budget for 2023-24 (Apr-Mar) in Parliament on Wednesday.

 

Traders 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 7.35-7.43%.

 

 

Today

 Wednesday

Price

Yield

Price

Yield

7.26%, 2032

99.13007.3874%99.39507.3480%

7.38%, 2027

100.64007.2043%100.81507.1578%7.10%, 202998.83007.3345%99.04007.2914%7.41%, 2036100.63007.4518%100.02007.4064%7.54%, 2036101.64007.4614%101.03507.4145%

India Gilts: Slump after lower-than-expected cutoffs at auction

 

 1445 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS7.26%, 2032PRICE (rupees)99.0799.2499.0299.1599.40YTM (%)      7.39637.37117.40387.38457.3480

 

MUMBAI–1445 IST–Prices of government bonds fell on lower-than-expected cutoff prices at the 300-bln-rupee auction, dealers said. Prices fell sharply earlier in the day as traders made space for the fresh supply. Yield on the 10-year benchmark 7.26%, 2032 bond topped the key 7.40% level for the first time since Nov 9 after the release of the auction result.

 

The RBI set the cutoff price on the 6.89%, 2025 bond at 99.78 rupees against the expected 99.95 rupees according to an Informist poll. The cutoff on the 7.40%, 2062 paper was set at 99.15 rupees as against the expected 99.23 rupees cutoff price in the poll.

 

Further losses were limited as traders covered short bets at the current market levels, dealers said. However, investors avoided stepping up purchases at yields considered lucrative because of caution before the Union Budget. “The auction results were weak, however, prices won’t fall further from here as there were too much of short bets,” a dealer at a state-owned bank said.

Dealers attributed the low cutoffs at the auction to traders placing less aggressive bids at the auction before the Union Budget as it was the last weekly gilt auction before the announcement of the government’s borrowing programme for 2023-24 (Apr-Mar).

 

The government may peg its net issuance of dated securities at 11.68 trln rupees in 2023-24 (Apr-Mar), up 4% from the budgeted 11.19 trln rupees in the current financial year, according to an Informist poll. The poll showed that the government is likely to eclipse the record it set in 2022-23 by announcing a borrowing programme of 15.8 trln rupees on a gross basis through dated securities. 

 

Moreover, the limited number of market participants augmented the volatility, dealers said. Meanwhile, yield on the benchmark 10-year US Treasury note rose further to 3.54% during the day from 3.49% on Thursday. The Brent crude oil contract for March delivery also rose to $88.26 per barrel after settling about 2% higher on Thursday, which pulled domestic gilt prices further down, dealers said.

 

According to data on the Reserve Bank of India’s Negotiated Dealing System–Order Matching platform–market-wide turnover was 160.75 bln rupees at 1445 IST, compared with 172.50 bln rupees at 1430 IST on Wednesday.

 

For the rest of the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.36-7.43%.  (Kasthuri Akhil)

India Gilts: Further dn before auction result, 10-yr yld at 11-wk high

 

 1240 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS7.26%, 2032PRICE (rupees)99.1399.2499.1599.1599.40YTM (%)      7.38747.37117.38457.38457.3480

 

MUMBAI–1240 IST–-Prices of government bonds fell further as traders placed short bets ahead of the result of 300-bln-rupee auction today, dealers said. The yield on the 10-year benchmark bond rose to the highest level since Nov 9.

 

A further rise in US Treasury yields and crude oil prices in Asian trade also weighed on government bond prices, dealers said.

 

“The demand is expected to be weak for the 14-year paper as traders hesitate to stock up on fears of higher borrowing figure in the Budget,” a dealer at a state-owned bank said. “However, there is good demand for the shorter-term papers as they are at good (yield) levels to buy.”

 

The government offered to sell 40 bln rupees of the 6.89%, 2025 bond; 60 bln rupees of the 7.10%, 2029 bond; 110 bln rupees of the 7.41%, 2036 bond, and 90 bln rupees of the 7.40%, 2062 bond at the auction from 1030 IST to 1130 IST.

 

Traders expect the cut-off prices on the long-term papers to be lower than the secondary market levels because they refrained from stocking up on longer-dated securities as has been the case in the past two weeks in anticipation of a higher borrowing number in the Union Budget to be announced on Feb 1, dealers said.

 

The market expects the government to eclipse the record it set for 2022-23 (Apr-Mar) by announcing a borrowing programme of 15.8 trln rupees on a gross basis through dated securities, according to an Informist poll. 

 

Investors also remained on sidelines during the auction as the market gauged weak appetite amidst limited participation, dealers said. Some dealers said the demand for the 7-year paper may also be affected due to weak investor demand.

 

Since it was a truncated week on account of Republic Day holiday on Thursday, most traders placed a majority of short bets in the beginning of the day before the auction that led to the sharp fall in prices. Moreover, there were limited number of participants due to the ongoing Fixed Income Money Market and Derivatives Association of India conference at Dubai that augmented trade volatility, dealers said.

 

Meanwhile, the yield on the benchmark 10-year US Treasury note rose 3 basis points to 3.49% on Thursday and further to 3.53% in Asian trade. The Brent crude contract for March delivery also rose to $87.86 per barrel after settling about 2% higher on Thursday, which pulled domestic gilt prices further down, dealers said.

 

According to data on the Reserve Bank of India’s Negotiated Dealing System–Order Matching platform–market-wide turnover was 95.05 bln rupees at 1230 IST, compared with 114.65 bln rupees at 1235 IST on Wednesday.

 

For the rest of the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.34-7.42%. (Kasthuri Akhil)

India Gilts: Fall on short bets ahead of last auction before Budget

 

 0935 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS7.26%, 2032PRICE (rupees)99.1999.2499.1599.1599.40YTM (%)      7.37857.37117.38457.38457.3480

 

 

MUMBAI–0935 IST–Government bond prices were down today as traders placed short bets ahead of the last weekly auction before the Union Budget, dealers said. The government has offered to sell 40 bln rupees of the 6.89%, 2025 bond; 60 bln rupees of the 7.10%, 2029 bond; 110 bln rupees of the 7.41%, 2036 bond, and 90 bln rupees of the 7.40%, 2062 bond at the auction. 

 

“It has been a short week, and it is the last auction before Budget,” a dealer at a primary dealership said. “Traders are looking to cover their bets in the auction.” 

 

A finance ministry official told Informist that the government does not have any plans to borrow extra through gilts in financial year 2022-23 (Apr-Mar). 

 

Additionally, market participants expect the government to eclipse the record it set for 2022-23 (Apr-Mar) by announcing a borrowing programme of 15.8 trln rupees on a gross basis through dated securities, according to an Informist poll. For 2022-23, the government is scheduled to borrow 14.21 trln rupees through sale of dated securities. 

 

Meanwhile, the yield on the benchmark 10-year US Treasury note rose 3 basis points to 3.49% on Thursday and further rose to 3.53% in Asian trade after recent data showed resilience in the US economy, which may prompt the Fed to maintain its monetary policy stance in order to cool inflation going forward. 

 

The two-day meeting of the US rate-setting panel is scheduled to commence on Tuesday. According to the CME FedWatch tool, 99.6% of future traders expect the rate-setting panel to hike the federal funds target range by 25 basis points, with the outliers expecting a repeat of the 50-bps hike announced in December.

 

Moreover, Brent crude contract for March delivery rose to $87.47 per barrel on Thursday from Wednesday’s settlement of $86.12 per bbl on expectations of strengthening global demand as the world’s largest oil importer China reopens its economy. Faster-than-expected growth of the US economy in the Oct-Dec quarter also added to demand expectations. 

 

According to data on the Reserve Bank of India’s Negotiated Dealing System–Order Matching platform–marketwide turnover was 21.55 bln rupees at 0935 IST, compared with 26.25 bln rupees at the same time Wednesday.

 

During the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.30-7.40%. (Anjali)

India Gilts: Seen lower ahead of auction, rise in US yields weighs

 

MUMBAI – Prices of government bonds are seen opening slightly lower, as traders may place short bets ahead of the 300-bln-rupee auction today. Moreover, a rise in US Treasury yields and crude oil prices may also weigh on gilts, dealers said.

 

Today, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.30-7.40% as against 7.35% on Wednesday.

 

The demand at today’s auction is expected to provide cues on the market’s appetite for dated securities before the Union Budget on Feb 1, where the government is expected to announce its biggest-ever borrowing programme, dealers said.

 

The government will sell 40 bln rupees of the 6.89%, 2025 bond; 60 bln rupees of the 7.10%, 2029 bond; 110 bln rupees of the 7.41%, 2036 bond, and 90 bln rupees of the 7.40%, 2062 bond at the auction today.

 

Meanwhile, the yield on the benchmark 10-year US treasury note rose to 3.49% on Thursday from 3.46% the previous day and further rose to 3.52% in Asian trade today. 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 Treasury yields rose after recent data showed resilience in the US economy, which may prompt the Fed to maintain its monetary policy stance in order to cool inflation going forward.

 

The US GDP data, released on Thursday, showed growth at 2.9% for the Oct-Dec quarter as against an estimate of 2.6% in a Reuters poll. The US inflation data also showed improvement as personal consumption expenditures growth slowed to 2.1% on year from 2.3% in the Jul-Sep quarter.

 

A separate report from the Labor Department on Thursday showed the labour market remained strong, with initial claims for state unemployment benefits dropping 6,000 to a seasonally-adjusted 186,000 for the week ended Jan 21, lower than the 192,000 reported for the previous week.

 

Market participants now await the monetary policy review of the US Federal Open Market Committee, dealers said. The two-day meeting of the US rate-setting panel is scheduled to commence on Tuesday. According to the CME FedWatch tool, 99.6% of future traders expect the rate-setting panel to hike the federal funds target range by 25 basis points, with the outliers expecting a repeat of the 50-bps hike announced in December.

 

Moreover, crude oil prices advanced about 2% on Thursday on expectations of strengthening global demand as the world’s largest oil importer China reopens its economy. Faster than-expected growth of the US economy in the Oct-Dec quarter also added to demand expectations. The Brent crude contract for March delivery rose to $87.47 per barrel on Thursday from Wednesday’s settlement of $86.12 per bbl. (Nishat Anjum)

 

End

US$1 = 81.52 rupees

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

 

Edited by Avishek Dutta

 

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