Informist, Wednesday, Sep 22, 2021
By Aaryan Khanna
NEW DELHI – Government bonds ended on a weak note today because of last minute sales by some traders looking to trim their holdings before the outcome of the US Federal Reserve’s monetary policy meeting, due later today, dealers said.
Traders were wary of negative surprises from the US Federal Open Market Committee’s decision, including chances the US central bank would outline plans to taper its asset purchases, which could push up yields on treasury notes and consequently, those on domestic bonds, dealers said.
Investors also took the opportunity to trim their holdings and book profits on the 10-year benchmark 6.10%, 2031 bond and the 6.64%, 2035 bond, both of which were included in the RBI’s next gilt purchase on Thursday and had risen sharply in previous weeks, dealers said.
“(Bank) books have been heavy because of the long rally we’ve had over the past few weeks, people cut exposure to book profits before the FOMC meeting can do any damage to being in-the-money on these papers,” a dealer at a private bank said.
The 10-year benchmark 6.10%, 2031 bond ended at 99.71 rupees or 6.14% yield, against 99.83 rupees or 6.12% yield on Tuesday.
Meanwhile, the new 6.67%, 2035 bond outperformed its peers in longer maturities as traders sought the on-the-run paper in place of the 6.64%, 2035 bond which is seen headed for illiquidity now that the government has ceased its re-issuances.
Short-term bonds witnessed further selling pressure on the back of a sharp fall on Tuesday, after Informist exclusively reported, citing a banking industry source, that the RBI would limit its injection of durable liquidity into the financial system through its foreign exchange operations.
Investors avoided aggressive bets in favour of short-term gilts as the RBI’s recent liquidity absorption measures were seen as a signal that it was not comfortable with higher levels of excess liquidity in the financial system.
“The RBI’s recent messaging has suggested they are actively trying to limit excess liquidity, so obviously investors are moving from the short- to the long-end; the 6.67%, 2035 bond is seeing interest already, though its outstanding is low,” a dealer at a primary dealership said.
According to data on RBI’s Negotiated Dealing System – Order Matching Platform, the market-wide turnover today fell to 380.15 bln rupees, as against 503.30 bln rupees on Tuesday.
OUTLOOK
On Thursday, gilts may take cues from the outcome of the US Federal Reserve’s monetary policy meeting.
Dealers may exercise caution ahead of the result of the next round of the RBI’s open market operations on Thursday, which include a simultaneous purchase and sale of 150 bln rupees worth of gilts.
While the inclusion of the 6.10%, 2031 and 6.64%, 2035 bonds in the RBI’s next gilt purchase may anchor prices, gains may be capped due to the RBI’s decision to conduct a bond sale to neutralise the liquidity impact of the purchase, dealers said.
Moreover, uncertainty over additional borrowing for goods and services tax cess shortfall to states, in the run-up to the release of the Centre’s borrowing calendar for the second half of 2021-22 (Apr-Mar), may keep dealers on the sidelines.
Any sharp movement in US Treasury yields and crude oil prices overnight may also guide domestic bonds early in trade.
Yield on the 10-year benchmark 6.10%, 2031 bond is seen at 6.11-6.17% on Thursday.
India Gilts: In thin band; US FOMC outcome eyed for further cues
NEW DELHI–1400 IST–Government bonds were in a narrow band because dealers avoided fresh bets on caution ahead of the outcome of the US Federal Reserve’s monetary policy meeting scheduled to be detailed later today.
While traders do not expect any surprises from the Fed meet, they are also eyeing movement in US Treasury yields or overnight indexed swap rates for cues from global investors towards the end of Indian market hours, dealers said.
Traders also kept to the sidelines after pricing in the Reserve Bank of India’s recent announcement of its open market operations scheduled for Thursday, leading to a lack of significant domestic cues, dealers said.
Meanwhile, the 5.63%, 2026 bond outperformed other on-the-run gilts as it had fallen sharply on Tuesday, limiting further losses. Moreover, a large reported deal buoyed trader demand speculating buying interest from foreign portfolio investors, dealers said.
“Traders are expecting a reasonable amount of FPI interest in the short-end right now, and it fell quite badly yesterday, so the level is being supported with some positive bias because there was a large reported deal again,” a dealer at a foreign bank said.
According to the website of the Clearing Corp of India Ltd, a deal worth 4 bln rupees was struck in the 5.63%, 2026 bond on a T+2 settlement basis under the unconfirmed standard lot reported deals on the Negotiated Dealing System-Order Matching Segment.
Dealers were also cautious placing bets ahead of a scheduled speech by RBI Governor Shaktikanta Das at 1445 IST. Governor Das will deliver the keynote address at the India Management Association’s 48th National Management Convention Day, which may lend cues to gilt prices, dealers said.
Yield on the 10-year benchmark 6.10%, 2031 bond is seen at 6.10-6.15% today. (Aaryan Khanna)
India Gilts: Steady ahead of US FOMC outcome; profit booking weighs
MUMBAI–1127 IST–Government bonds were steady because dealers avoided large bets ahead of the outcome of the US Federal Reserve’s monetary policy meeting scheduled to be detailed later today.
US Federal Reserve Chair Jerome Powell’s address would be closely watched for any cues regarding the timing of a much-expected reduction in the scale of asset purchases by the central bank.
Some dealers took the opportunity to book profit in the two-most-traded gilts–the 6.10%, 2031 bond and the 6.64%, 2035 bond–as the papers had risen sharply over the last two weeks on expectation that the Reserve Bank of India would include these in its next purchase.
While the RBI on Monday after market hours announced the inclusion of the two gilts in its 150-bln-rupee bond purchase auction, dealers said the quantum was lower than expected. Dealers were expecting the central bank to announce a gilt purchase auction worth 300 bln rupees.
“The RBI included both the gilts that were expected to be a part of the next G-SAP (government securities acquisition programme), but the market was expecting a G-SAP to be announced of the balance 300 bln rupees together,” said a dealer with a private bank.
“Because the RBI has only announced 150 bln rupees, we don’t know if the next 150 bln rupees G-SAP will have these papers. The aggressive buying that we had seen was largely trader-driven, who were stocking up the two papers (6.10%, 2031 and 6.64%, 2035) to sell at a higher price, expecting the RBI to take a significant quantum, but there’s clarity only on the 150 bln rupees as of now.”
The RBI, under the government securities acquisition programme, has offered to buy gilts worth 1.2 trln rupees in Jul-Sep and has already bought stock worth 900 bln rupees. Some sections of the market were expecting the central bank to announce a gilt purchase auction of the balance 300 bln rupees in one go.
Yield on the 10-year benchmark 6.10%, 2031 bond is seen at 6.10-6.15% today. (Nikhil Patwardhan)
India Gilts: Seen steady on caution ahead of US FOMC meet outcome
MUMBAI – Government bonds are seen opening on a steady note because dealers may avoid large bets ahead of the outcome of the US Federal Reserve’s bi-monthly monetary policy meeting, which will be detailed later today.
Globally, investors are keenly waiting for cues from US Federal Reserve Chair Jerome Powell’s address at the policy briefing today as he is likely to provide clarity on when the US central bank will start to taper its $120 bln monthly asset purchases and an eventual timeline of an interest rate hike.
At the annual Jackson Hole symposium last month, Powell had said the tapering would begin later this year, and all eyes will now be on the specifics, dealers said.
Yield on US Treasury notes, too, were slightly up on Tuesday as the Federal Open Market Committee began its two-day meeting. Yield on the 10-year US Treasury note rose 2 basis points to settle at 1.33% on Tuesday.
The rise in yield may weigh on prices, dealers said, as 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 for foreign investors.
Moreover, uncertainty over additional borrowing for Goods and Services Tax cess shortfall to states, in the run-up to the release of the Centre’s borrowing calendar for the second half of 2021-22 (Apr-Mar), may also keep dealers on the sidelines.
However, inclusion of the two most-traded papers–the 6.10%, 2031, and the 6.64%, 2035–at the RBI’s gilt purchase auction under the government securities acquisition programme would keep their yields anchored as dealers might stock them up in a bid to sell them to the central bank at a higher price. However, gains in the papers might be limited as they gained sharply over the past two weeks. Moreover, the quantum of gilt purchases announced by the RBI was lower than expected.
The gilt purchase auction worth 150 bln rupees is scheduled for Thursday. Under the government securities acquisition programme, the RBI has offered buying gilts worth 1.2 trln rupees in Jul-Sep, out of which the central bank has already bought 900 bln rupees worth of stock. Some sections of the market were expecting the central bank to announce a gilt purchase auction of the balance 300 bln rupees together.
Yield on the 10-year benchmark 6.10%, 2031 bond is seen at 6.10-6.15% today. (Nikhil Patwardhan)
End
US$1 = 73.87 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Akul Nishant Akhoury
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