India Gilts Review: Sharply up on RBI rate cut, steps on liquidity
Friday, Mar 27
By Vaibhav Chakraborty
NEW DELHI – Government bond prices rose sharply as the Reserve Bank of India reduced the repo rate by 75 basis points and announced targeted long-term repo operations as well as several other measures to counter the economic impact of the spread of coronavirus, dealers said.
The 10-year benchmark 6.45%, 2029 bond closed at 102.18 rupees or 6.14% yield, against 101.60 rupees or 6.22% yield on Thursday.
Following other central banks, the RBI finally announced a repo rate cut today, with the central bank’s Monetary Policy Committee voting 4-2 in favour of a 75-basis-point rate cut that surprised market participants.
The rate-setting panel also decided to bring down the reverse repo rate by 90 basis points to 4.00% in order to discourage banks to park their excess funds with the central bank and instead use it to improve interest rate transmission, dealers said.
The yield on the 10-year benchmark 6.45%, 2029 bond tanked to an 11-year low of 5.98% in response to the cut in rates and measures to infuse further liquidity in the system. The last time 10-year benchmark yield fell below 5.99% was on Jan 28, 2009, when the economy was recovering from the aftermath of the global financial crisis.
Bonds maturing in the one-five year segment also saw a slump in yields because of targeted long-term repo operations up to 1 trln rupees, a move aimed at compressing the widening spread between corporate bonds and government bonds as banks have been asked by the RBI to park the arbitrage fund to buy corporate debt, dealers said.
Along with a 75-basis-point rate cut and up to 1-trln-rupee targeted long-term repo operations, the central back drastically reduced the cash reserve ration by 100 bps to 3.00% of net demand and time liabilities for a period of one year, a move that would release 1.37 trln rupees worth of excess liquidity in the system.
“Reserve Bank of India, very correctly so, announced a comprehensive bazooka covering all aspects of the economy by taking measures system-wide both through liquidity, rates and regulatory forbearance (retail as well as for industry) and also targeted measures to manage the corporate bond markets,” Upasna Bhardwaj, senior economist at Kotak Mahindra Bank, said.
However, after the dust settled from RBI Governor Shaktikanta Das’ policy video conference, traders rushed to book profits post the surge in prices and disappointment of the central bank not releasing an open market borrowing calendar, which was highly anticipated.
Market participants were hopeful that the heavy selling by foreign portfolio investors in March and the 1.7-trln-rupee relief package announced by the government on Thursday may prompt the RBI to come out with an outright calendar for open market purchases of dated securities in order to ease the supply pressure.
Foreign portfolio investors have net sold 445.50 bln rupees worth of Indian dated securities since the beginning of March, data available on the Clearing Corp of India’s website showed.
With the government announcing a fiscal stimulus of 1.7 trln rupees, market participants were jittery that this may lead to an increase in the supply of market borrowing as the gross borrowing for 2020-21 (Apr-Mar) is currently pegged at 7.8 trln rupees.
The borrowing calendar for Apr-Sep is likely to be released next week. Fear over additional supply also led to profit booking by some traders, while some booked profits ahead of the end of the current financial year, dealers said.
“I think the moment liquidity picks up, all the credit spread which had grown out will all start to come back, they’ll start coming down. It was more than I had expected from the RBI. God has been kind, let’s put it this way,” Vikas Goel, managing director and chief executive officer, PNB Gilts, said.
Trade volumes jumped incrementally despite several traders working from home as the RBI signalled it would do whatever it takes to keep the economy on track. Market-wide turnover was at 352.40 bln rupees today, against 150.50 bln rupees on Thursday, data available on the RBI’s Negotiated Dealing System – Order Matching platform showed.
Government bonds are not traded on Saturdays.
On Monday, bond prices are expected rise after the RBI announced 75-basis-point rate cut and measures to infuse further liquidity in the system through reduction in cash reserve ratio and targeted long-term repo operations.
Short-term maturity bonds may rise more than others due to surplus liquidity measures taken by the RBI and announcement of up to 1 trln rupees of targeted long-term repo operations.
Some traders may take the opportunity to book profits after the sharp rise in prices today as well as ahead of the end of current financial year.
Any sharp movement in crude oil prices or US Treasury yields may provide early cues to bonds.
On Monday, the yield on the 10-year benchmark 6.45%, 2029 bond is seen in a band of 6.07-6.20%.
India Gilts: Off-highs on profit booking, worry of large supply FY21
|1605 IST||PRICE HIGH||PRICE LOW||OPEN||PREVIOUS|
MUMBAI –1605–Government bonds were off-highs, despite Reserve Bank of India lowering interest rates, because market participants rushed to book profits ahead of the end of the financial year and as traders remained jittery over the prospect of large market borrowing by the Centre for next fiscal, dealers said.
Market participants were disappointed that RBI refrained from announcing a large plan to purchase bond through open market operations.
Traders seek clarity on whether the RBI will directly purchase extra bonds issued by the government as a result of any measures announced to tackle the coronavirus’ economic impact or whether the RBI will conduct such operations with the market.
Gross market borrowing is pegged at 7.8 trln rupees for 2020-21 (Apr-Mar) and additional bond supplies may be difficult for the market to absorb without the helping hand of the RBI, dealers said.
Market participants are also uncertain regarding the planned bond issuances with no limits for non-resident investors, a plan that was proposed by the government when it presented the Budget in February. If the proposed plan to list Indian government bonds on international indices does not get through, it will imply a larger bond supply for domestic investors.
Earlier today, bond prices rose sharply, with yield on the 10-year benchmark 6.45%, 2029 bond falling to the lowest level since Jan 28, 2009, after the RBI cut repo rate by 75 basis points to 4.40% and the reverse repo rate by 90 bps to 4.00%.
The RBI also reduced the cash reserve ratio by 100 basis points to 3.0%, which frees up liquidity of 1.37 trln rupees, RBI Governor Shaktikanta Das said. (Suyash Pande)
India Gilts: Off-highs on profit booking; lack of OMO buy disappoints
|1435 IST||PRICE HIGH||PRICE LOW||OPEN||PREVIOUS|
NEW DELHI–1435 IST–Government bond prices were off-highs as market participants were left disappointed due to lack of open market purchases calendar, despite the Reserve Bank of India lowering repo rate by 75 basis points in a bid to tackle economic slowdown as a result of the spread of coronavirus, dealers said.
Traders were jittery that the heavy supply of bonds in the upcoming weeks may be difficult for the market to absorb, considering the government has already resorted to a 1.7-trln-rupee relief package in its effort to soften the economic fallout from the virus pandemic.
Market participants were of the view the RBI may announce an open market operations calendar to purchase dated securities in tandem with the government’s relief package and the huge overseas investors’ outflow from Indian government bonds in March.
Foreign portfolio investors have net sold 433.38 bln rupees worth of Indian dated securities since the beginning of March, data available on the Clearing Corp of India’s website showed.
Some traders also took the opportunity to book profits after the slump in bond yields today. Yield on the 10-year benchmark 6.45%, 2029 bond nosedived by 24 basis points to an 11-year low of 5.98% after the RBI reduced the repo rate.
The RBI surprised the market by announcing a 75-basis-point repo rate cut to 4.40% and reverse repo rate by 90 bps to 4.00% as the central bank unleashed its armoury to cushion the economy from a fallout due to the spread of the virus.
“The market is waiting for some clarity on OMO after the steps taken by the RBI today, which has held off the rally because the supply is likely to hit the market from next week onwards; so an OMO notice would further push the yields down,” a dealer with a private bank said.
Yield on the 10-year benchmark 6.45%, 2029 bond is seen in a band of 6.05-6.15% for rest of the day. (Vaibhav Chakraborty)
India Gilts: Trim gains on profit-booking; mkt eyes borrow calendar
|1125 IST||PRICE HIGH||PRICE LOW||OPEN||PREVIOUS|
MUMBAI–-1125 IST–Government bonds gave up some gains as market participants rushed to book profits after the surge in prices earlier today, dealers said.
Bond prices rose sharply, with yield on the 10-year benchmark 6.45%, 2029 bond falling to the lowest level since Jan 28, 2009, after the Reserve Bank of India cut repo rate by 75 basis points to 4.40% and the reverse repo rate by 90 bps to 4.00%.
The RBI also reduced the cash reserve ratio by 100 basis points to 3.0%, which frees up liquidity worth 1.37 trln rupees, RBI Governor Shaktikanta Das said.
However, market participants booked profits as they await the release of market borrowing calendar for Apr-Sep. The government on Thursday announced a relief package that is projected to cost 1.7 trln rupees.
“The rise was very sharp and people are booking profits at the moment plus you have some sort of fiscal concern also playing out because the borrowing calendar is yet to be released,” said a dealer with a private bank.
“Despite a rate cut, the volumes are lower than what they should have been and going forward I believe yields will come down further, right now it is just a knee-jerk reaction. From here spread papers will perform better which are generally illiquid because you have few auctions left for 6.45%, 2029 bond,” said a dealer with a private bank.
Market participants continue to expect RBI announcement of a large-scale open market operation to purchase government bonds, dealers said.
Yield on the 10-year benchmark 6.45%, 2029 bond is seen in a band of 6.05-6.20% for rest of the day. (Suyash Pande)
India Gilts:Yields plunge as RBI cuts repo rate by 75 bps
|1045 IST||PRICE HIGH||PRICE LOW||OPEN||PREVIOUS|
MUMBAI–1045 IST–Yield on the 10-year benchmark bond plummeted to the lowest level in over 11 years after the Reserve Bank of India today surprised market participants by lowering the repo rate by 75 basis points to 4.40%, dealers said.
The MPC also voted to lower reverse repo rate to 4.00% to discourage banks from parking funds with the central bank. The RBI governor said that the monetary policy committee had advanced its meeting and voted 4-2 in favour of lowering interest rates.
The RBI also lowered the cash reserve ratio by 100 basis points to 3.00%, effectively freeing up 1.37 trln rupees worth of liquidity, Das said.
Dealers were disappointed that the central bank made no announcement about a large scale open market operation, but did not rule out the possibility in the near future.
Yield on the 10-year benchmark 6.45%, 2029 bond is seen in a band of 5.95-6.05% for rest of the day. (Suyash Pande)
India Gilts:Surge on mkt hopes of RBI rate cut, large-scale OMO buys
|0930 IST||PRICE HIGH||PRICE LOW||OPEN||PREVIOUS|
India Gilts: Surge on mkt hopes of RBI rate cut, large-scale OMO buys
MUMBAI-–0930 IST—-Government bonds surged today because market participants expect the Reserve Bank of India to lower interest rates today and announce a large scale bond purchase calendar through open market operations to soften the economic impact of the coronavirus, dealers said.
These hopes were fuelled because the RBI today announced it will hold a press conference at 1000 IST.
This would be the second press conference by RBI Governor Shaktikanta Das in two weeks. In the last press conference, Das had announced long-term repo operation of up to 1 trln rupees and a dollar/rupee sell-buy swap of $2 bln.
On Thursday, the government announced a relief package projected to have an expenditure of 1.7 trln rupees which includes direct cash transfer and food grain provisions.
The central bank is expected to follow other major central banks and lower interest rates to counter the economic impact of the virus. The US Federal Reserve has lowered interest rates by 150 basis points and announced asset purchases of over $700 bln.
The RBI is expected to cut interest rates by 50 basis points, announce a large scale open market operation purchase calendar and announce changes to several regulations to support growth in the Indian economy.
Some traders also expect announcement of measures aimed at cooling off the premia on corporate bonds. The spread of the coronavirus and restrictions imposed to contain it are expected to be a major headwind for India’s growth which has been languishing near six-year lows.
“Market seems to have factored in a rate cut of 50 basis points and also an OMO calendar, but we will have to see the quantum of cut and the scale of the OMOs plus if they (RBI) leave anything for the scheduled meeting next week,” a dealer with a state-owned bank said.
Yield on the 10-year benchmark 6.45%, 2029 bond is seen in a band of 6.00-6.20% for rest of the day. (Suyash Pande)
India Gilts: Seen up as mkt bets on rate cut at RBI’s press briefing
NEW DELHI – Government bonds are seen rising today because the Reserve Bank of India Governor Shaktikanta Das’ decision to call for a press conference at 1000 IST has led to hopes that the central bank will lower interest rates and announce other monetary measures to battle the economic impact of the coronavirus pandemic.
Das will address a press conference at 1000 IST, the central bank said on its twitter handle. On Thursday, Finance Minister Nirmala Sitharaman announced a 1.7-trln-rupee relief package for the poor to mitigate the impact of the lockdown. India is currently under a 21-day nationwide lockdown to curb the spread of the virus.
Most dealers expect the central bank to lower the repo rate–currently at 5.15%–and announce liquidity support through open market operations or long-term repo operations.
This is Das’ second press conference in two weeks. Das had on Mar 16 announced steps to infuse liquidity into the system including dollar/rupee sell-buy swap auction and additional long-term repo operations.
The central bank followed this up by announcing even more measures to support liquidity in the banking system such as bond purchases through open market operations and two rounds of 16-day variable rate repos worth a total of 1 trln rupees.
However, despite these measures, bonds have witnessed a phase of severe volatility over the last few days, primarily owing to disruptions in operation faced by treasury departments in the wake of the lockdown imposed by the government. The volatility in prices has been exacerbated by the fact that trade volumes have shrunk to multi-year lows amid extreme risk aversion in the market.
After falling to an over 11-year low of 5.99% on Mar 9, yield on the 10-year benchmark government bond has since climbed 23 basis points.
Today, yield on the 10-year benchmark 6.45%, 2029 bond is seen in a band of 6.00-6.35% as against 6.22% at previous close. End
US$1 = 74.86 rupees (at 1700 IST)
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Avishek Dutta
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