India Gilts Review:10-yr bond ends off lows on auction cut-off price

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Friday, Jul 3

 

By Suyash Pande and Vaibhav Chakraborty

 

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NEW DELHI-The 10-year benchmark 5.79%, 2030 bond ended off lows because the cut-off price for the paper set by the Reserve Bank of India at the auction today was better than expected, dealers said.

 

The 10-year benchmark 5.79%, 2030 bond ended at 99.58 rupees or 5.8455% yield, against 99.61 rupees or 5.8415% yield on Thursday. The paper had earlier fallen to a low of 99.38 rupees or 5.8726% yield.

 

The government borrowed 50 bln rupees through the 5.09%, 2022 bond, 180 bln rupees through the 5.79%, 2030 bond, 40 bln rupees through the floating rate bond maturing in 2033, and 70 bln rupees through the 7.19%, 2060 bond.

 

The cut-off price for the 10-year benchmark 5.79%, 2030 bond was set at 99.41 rupees as against the median of 99.38 rupees in a poll of 11 bond dealers by Cogencis.

 

Market participants had been worried that demand for the 10-year benchmark 5.79%, 2030 bond would be weak, as had been the case for in the 10-14 year maturity bucket in the last few weekly auctions.

 

This is because of the heavy supply of bonds in this maturity as a large chunk of government borrowing is in the 10-14 year category. Ever since the Centre increased the gross market borrowing for the current fiscal year to 12 trln rupees, the market has been facing 120-180 bln rupees of bonds in this category on a weekly basis.

 

This resulted in supply fatigue, with traders asking for a steep discount on the bonds that they bought in the primary market in comparison to secondary market prices. Traders said this made any rise in bond prices open to the risk of fizzling out because of sales from investors who had bought the bonds cheaply at auctions.

 

Dealers said today’s auction results signalled that bond prices may rise on a sustainable basis provided the central bank continues to take supportive steps for the market.

 

The central bank conducted special open market operation on Thursday but uncertainty over whether the operation was a one-off or the first among a series of steps meant that many investors offered bonds to the RBI at prices sharply lower than those prevailing in the secondary market.

 

Dealers said if the central bank makes more announcements that ease concerns over large supply of dated securities, yields would fall.

 

The central bank is expected to announce more special open market operations or outright open market operations. It is also expected to hike the cap on the held-to-maturity category which would protect against marked-to-market losses.

 

“Today’s auction is a good signal for the market. It means the rally in prices that we saw on Wednesday can sustain and whenever people have targeted higher yields, it has not sustained,” a dealer with a primary dealership said.

 

Once the auction result was announced, traders were said to have covered their short bets placed before the auction. Some dealers said investors who had sold securities to the RBI at the special OMO auction participated in the auction.

 

“People had made some space in their HTM (held-to-maturity) books after the special OMO and these people were the ones who bought. Considering the large surplus liquidity, it made sense for them to do so,” a dealer with a state-owned bank said. The excess liquidity in the system is over 7 trln rupees.

 

Gilt trading hours were extended till 1500 IST for today.

 

The market-wide turnover was 328.85 bln rupees, according to data on RBI’s Negotiated Dealing System – Order Matching .

 

OVERNIGHT INDEXED SWAPS

Overnight indexed swap rates ended steady today as market participants refrained from placing large bets due to lack of fresh cues on domestic interest rates, dealers said.

 

The one-year OIS rate ended at 3.58-3.66%, against 3.62-3.63% on Thursday. The five-year swap rate ended at 4.15-4.16%, compared with 4.14-4.17% at the previous close. 

 

With rates having consolidated at current levels and no fresh cues on interest rates, traders said there is not much room left for the swap rates to edge lower. At current levels, swap rates have already factored in a rate cut by the Reserve Bank of India in the near term.

 

In a bid to support the economy after the disruptions from the pandemic, the central bank has already lowered the repo rate by 115 basis points to a record low of 4.0%, and the reverse repo rate by 155 basis points to 3.35%.

 

“There is no point in building fresh position on the OIS as all the negatives as well as positives have been already factored for the time being, which is why the rates have stagnated in the recent weeks,” a dealer with a private bank said.

 

OUTLOOK

Gilts are expected to open higher on Monday due to expectations of supportive steps being announced by the RBI. Market participants expect the central bank to announce more rounds of special open market operations or outright open market operations.

Goods and service tax collections data for June eased some concerns over the Centre’s finances this week.

 

Any sharp movement in crude oil prices and US Treasury yields may also lend cues at open.

 

The yield on the 10-year benchmark 5.79%, 2030 bond is seen in a band of 5.83-5.88% as against 5.85% today.

 

 

TODAY

THURSDAY

Price

Yield

Price

Yield

6.18%, 2024

 104.7850

 4.9363%

 104.8400

 4.9246%

5.22%, 2025

 100.6400

 5.0574%

 100.7700

 5.0416%

6.45%, 2029

 103.4000

 5.9649%

 103.4550

 5.9575%

5.79%, 2030

 99.5800

 5.8455%

 99.6100

 5.8415%

6.19%, 2034

 99.6375

 6.2293%

 99.6900

 6.2237%


India Gilts: 10-year bond off lows on auction cutoff price

 

  1435 IST   PRICE HIGH   PRICE LOW        OPEN     PREVIOUS
5.79%, 2030
PRICE (rupees) 99.49 99.55 99.38 99.55 99.61
YTM (%)       5.8584 5.8496 5.8726 5.8496 5.8415

 

NEW DELHI–1435 IST–The 10-year benchmark 5.79%, 2030 bond came off lows after the cutoff price set for the paper by the Reserve Bank of India was better-than-expected at the auction today, dealers said.

 

Gilt trading hours were extended till 1500 IST today, dealers said.

 

The cutoff price for the 10-year benchmark 5.79%, 2030 bond was set at 99.41 rupees as against 99.38 rupees, which was the median of a Cogencis poll of 11 bond dealers. Moreover, before the auction result, many dealers had been of the view that the paper may be met with weak demand at the auction as had been the case for the auction of dated securities in the past few weeks. 

 

Cutoff prices for the bonds in the 10-14 year segment at the weekly auction was being set sharply lower than the secondary market prices and also lower than expectations of bond dealers for the last few weeks.

 

Moreover, the fact that there was no greenshoe option used to borrow more than the notified from papers in the 10-14 year maturity bucket also supported bonds.

 

The Centre borrowed 340 bln rupees against the notified amount of 300 bln rupees. The government borrowed 50 bln rupees of 5.09%, 2022 bond; 180 bln rupees of 5.79%, 2030 bond; 40 bln rupees of the floating rate bond maturing in 2033; and 70 bln rupees of the 7.19%, 2060 bond.

 

The government has so far borrowed 400 bln rupees more than the notified amount at the gilt auctions by using the greenshoe option.

 

“The auction result was better than expectations the cutoff for the 10-year bond was better, even the most bullish estimates did not see yield on 2060 bond being set at 6.51% despite the greenshoe,” a dealer with a primary dealership said. 

 

“I think the rally seen on Wednesday may now sustain and some people may now target 5.75% (yield on the 5.79%, 2030 bond).” (Suyash Pande)


India Gilts:10-year gilt dn on expectation of weak demand at auction

 

  1240 IST   PRICE HIGH   PRICE LOW        OPEN     PREVIOUS
5.79%, 2030
PRICE (rupees) 99.45 99.55 99.42 99.55 99.61
YTM (%)       5.8638 5.8496 5.8672 5.8496 5.8415

 

NEW DELHI–-1240 IST–The 10-year benchmark 5.79%, 2030 bond fell further because market participants expect the demand for the paper at the auction to be weak, dealers said.

 

Today, the government auctioned 30 bln rupees of 5.09%, 2022 bond; 180 bln rupees of 5.79%, 2030 bond; 40 bln rupees of the floating rate bond maturing in 2033; and 50 bln rupees of the 7.19%, 2060 bond. Market participants await the results of the auction. 

 

Cutoff prices at auctions over the past few weeks have been sharply lower than the secondary market prices and traders expect the cutoff price for 10-year benchmark 5.79%, 2030 bond to be no different for today. Traders expect the cutoff price for the paper to be set between 99.30-99.40 rupees at the auction today.

 

“There is no general factor driving the market other than the fact that you are going to have supply hitting the market today and in the last few weeks the cutoff has been sharply low, so people are trading on that expectation,” a dealer with a state-owned bank said.

 

The supply of dated securities has been massive in the 10-14 year segment as this is the maturity bucket where a large chunk of government’s borrowing is concentrated.

 

Ever since the Centre hiked the gross market borrowing for the fiscal to 12 trln rupees, a weekly supply of 120-180 bln rupees of bonds in the 10-14 year maturity has hit the market, not counting the borrowing done using the greenshoe option. 

 

The 10-year benchmark 5.79%, 2030 bond, which was issued on May 11, may reach a net outstanding amount of 860 bln rupees after today’s auction. The bond is expected to reach close to the unofficial cap of 1.2 trln rupees of borrowing through single security in about a month’s time, after which the paper may lose the benchmark status.

 

The spread between 10-year benchmark 5.79%, 2030 paper and the 6.45%, 2029 bond has narrowed to 10 basis points from 22 basis points at the beginning of June and the two papers are expected to move in a manner which maintains this spread of 10 basis points, dealers said.

 

Yield on the 10-year benchmark 5.79%, 2030 bond is seen in a band of 5.33-5.88% for rest of the day. (Suyash Pande)


India Gilts: 10-yr bond down as mkt uncertain of demand at auction

 

  1045 IST   PRICE HIGH   PRICE LOW        OPEN     PREVIOUS
5.79%, 2030
PRICE (rupees) 99.51 99.55 99.46 99.55 99.61
YTM (%)       5.8553 5.8496 5.8614 5.8496 5.8415

 

NEW DELHI–1045 IST–The 10-year benchmark 5.79%, 2030 paper was down as market participants were uncertain about demand for the paper at today’s auction.

 

The government is scheduled to borrow 30 bln rupees through 5.09%, 2022 bond; 180 bln rupees through 5.79%, 2030 bond; 40 bln rupees through the floating rate bond maturing in 2033; and 50 bln rupees through the 7.19%, 2060 bond.

 

The 10-year benchmark 5.79%, 2030 paper supply has increased rapidly since its issuance in May as the Centre this year has hiked its gross borrowing to an enormous 12 trln rupees. The government typically conducts the bulk of it borrowing through bonds in the 10-14 year maturity bracket.

 

The current outstanding on the paper stands at 680 bln rupees, which is half of the government’s informal cap of 1.2 trln rupees from a dated security, that too within a short span of time, dealers said.

 

“There is a bit of caution being exercised by the market for the 10-year which has seen huge supply in short span of time and there is more supply coming in today,” a dealer with private bank said.

 

“There is also a bit of hangover from the disappointing cutoffs set at yesterday’s (Thursday) ‘Special OMO’, the prices at which PSUs (state-owned banks) offloaded their  from the HTM (held-to-maturity) seemed to show that they feared that another round may not happen,” the dealer added. 

 

Moreover, the cheaply-priced offers by market participants to sell their holding to the Reserve Bank of India at the special open market operation on Thursday indicated a pessimistic outlook on the market, dealers said.

 

The RBI set the cutoff price for the 6.79%, 2027 bond at 105.19 rupees and that for the 7.26%, 2029 bond at 107.33 rupees. The expectation, as per the median of a Cogencis poll of 10 bond dealers, was a cutoff price of 105.62 rupees and 107.62 rupees, respectively, for the 2027 and 2029 papers. 

 

According to participants, the cutoff prices set by the RBI were sharply lower than those prevailing in the secondary market, which indicates that the market participants are unsure whether such ‘Special OMOs (open market operations) will continue to take place in the near term.

 

Other bonds were largely steady as market participants refrained from placing large bets ahead of the today’s 300-bln-rupee sale, dealers said.

 

Yield on the 10-year benchmark 5.79%, 2030 bond is seen within a band of 5.83-5.88%, before the auction result, dealers said.  (Vaibhav Chakraborty)  


India Gilts: Seen steady ahead of 300-bln-rupee debt sale today

 

NEW DELHI – Government bonds are seen opening steady today as market participants may refrain from placing large bets ahead of today’s 300-bln-rupee debt auction.

 

The government is scheduled to borrow 30 bln rupees through 5.09%, 2022 bond; 180 bln rupees through 5.79%, 2030 bond; 40 bln rupees through the floating rate bond maturing in 2033; and 50 bln rupees through the 7.19%, 2060 bond.

 

Gilts may find support from the hope that the RBI may come out with more ‘Special OMO (Open Market Operations)’ or outright purchases of dated securities through open market, in a bid to support the market, asa large quantum of bond supply has weakened appetite.

 

In May, the Centre had hiked the gross market borrowing for 2020-21 (Apr-Mar) to 12.0 trln rupees from 7.8 trln budgeted earlier, as the government plans to tide over the fallout caused by the COVID-19 pandemic.

 

The RBI had conducted the simultaneous buying and selling of dated securities on Thursday, which led to the belief that the central bank may announce similar measures in the near term as the yields on the longer maturity paper have been under stress due large supply.

 

The spread between the 10-year benchmark 5.79%, 2030 bond and the repo rate is currently at a spread of 184 basis points, which sharply higher than those in past when the central bank had an accommodative stance. The repo rate currently stands at 4.00%.

 

However, the cheaply-priced offers by market participants to sell their holding to the Reserve Bank of India at the special open market operation on Thursday indicated a pessimistic outlook on the market.

 

The RBI set the cutoff price for the 6.79%, 2027 bond at 105.19 rupees and that for the 7.26%, 2029 bond at 107.33 rupees. The expectation, as per the median of a Cogencis poll of 10 bond dealers, was a cutoff price of 105.62 rupees and 107.62 rupees, respectively, for the 2027 and 2029 papers.

 

However, later during the day bond prices may take cues from the result of today’s weekly debt auction. Some market participants are of the view that since the RBI has come out with measures to support the market, the demand for dated securities may improve at today’s auction.

 

Yield on the 10-year benchmark 5.79%, 2030 bond is seen within a band of 5.81-5.86% as against 5.84% on Thursday.  (Vaibhav Chakraborty)

 

End

 

US$1 = 74.63 rupees 

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

 

Edited by Avishek Dutta

 

Cogencis Tel +91 (11) 4220-1000

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Source: Cogencis

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