Informist, Wednesday, Jan 5, 2022
By Aaryan Khanna
NEW DELHI – Government bonds, particularly those of longer maturities, rose amid thin trade as traders stepped up purchases at levels considered attractive after a sharp fall on Monday, dealers said.
Today, the 10-year benchmark 6.10%, 2031 bond ended at 97.14 rupees or 6.51% yield, against 97.07 rupees or 6.52% yield on Tuesday.
The 6.10%, 2031 bond and 14-year benchmark 6.67%, 2035 bond had plunged over 40 paise each on Monday after a market with weak appetite was overwhelmed by the double whammy of an uptick in state borrowing via bonds in Jan-Mar, and an overnight surge in US Treasury yields.
Some investors added gilts to their held-to-maturity portfolios citing lucrative yields, particularly as the 6.10%, 2031 gilt is expected to soon go off-the-run due to its high outstanding, dealers said. The Centre and the RBI may introduce a new 10-year bond as early as next week, with no further issuance expected in the 6.10%, 2031 bond.
Traders stocked up gilts anticipating the Reserve Bank of India would announce measures to cap yields, as it had done when it rejected all bids for 170 bln rupees worth of gilts at the weekly gilt auction on Friday, against the 240-bln-rupee notified amount, dealers said.
With the 10-year benchmark yield above 6.50%, traders were uncertain of the trajectory over the benchmark yield and waited for cues from the central bank.
While the RBI was seen uncomfortable with the high yields that the market had sought, it had not announced gilt-supportive measures amid a weak appetite for dated securities, keeping gains in check, dealers said.
“There is another expectation of RBI open market operations, as it happens every week, but I think it’s a small bounce after the fall yesterday and most of the trade was just churn,” a dealer at a foreign bank said.
“The narrative is unlikely to reverse until the 10-year (benchmark) yield goes below 6.50% again and there isn’t any indication that the market will drive it there unless there is a news item or RBI action,” the dealer said.
Volumes were impacted as attendance at bank treasury desks fell due to a surge in COVID-19 cases, with institutions allowing their employees to work from home with several states announcing partial restrictions on movement. The higher bid-ask spread for some bonds led to volatility in gilt prices during the day, dealers said.
However, traders also held off on large bets, particularly in short-term gilts, due to a lack of significant cues on the domestic front.
Demand was muted as the movement of US Treasury yields and crude oil prices was also adverse, but traders did not trim their holdings sharply at levels already seen low, dealers said.
Today, the market opened sharply lower on account of what may have been an erroneous trade by a market participant, dealers said.
The 10-year benchmark 6.10%, 2031 gilt was dealt 96.90 rupees or 6.54% yield at the open, but the small quantum of the deal meant traders disregard cues from the trade, dealers said.
“It may have been a fat finger, and its fortunate that it was a relatively small amount and didn’t spook the market into another round of selling, which would have been disastrous at these levels,” a dealer at a primary dealership said.
According to data on the RBI’s Negotiated Dealing System – Order Matching platform, the market-wide turnover was 145.75 bln rupees, against 195.70 bln rupees on Tuesday.
OUTLOOK
On Thursday, government bonds may open steady as traders may keep to the sidelines due to a lack of significant domestic cues.
The appetite for dated securities is likely to remain tepid due to heavy gilt portfolios amid steep supply and dealers may avoid large bets despite lucrative levels.
Investors are waiting for the minutes of the US Federal Reserve’s December meeting, which will be released before market hours on Thursday. The Fed had doubled the speed of the tapering of its asset purchase programme at the meeting.
Any sharp movement in US Treasury yields and crude oil prices might also lend cues at open.
On Thursday, the yield on the 10-year benchmark 6.10%, 2031 bond is seen at 6.48-6.55%.
India Gilts: In thin band; traders avoid large bets for lack of cues
NEW DELHI–1455 IST–Government bonds moved in a narrow range in a thin trade as most traders avoided placing large bets citing lack of significant domestic cues, dealers said.
Traders awaited fresh cues from the Reserve Bank of India on the direction for gilt yields after the 10-year benchmark 6.10%, 2031 bond’s yield rose above the psychologically-crucial 6.50% mark on Monday, dealers said.
The central bank was seen uncomfortable with the high yields that the market had sought but had not announced gilt-supportive measures amid weak appetite for dated securities, with the RBI’s last open market operation conducted in September, dealers said.
Volumes were impacted as attendance at bank treasury desks fell due to a surge in COVID-19 cases, with several states announcing partial restrictions on movement and banks allowing their employees to work from home. The higher bid-ask spread among traders led to some volatility in gilt prices during the day, dealers said.
Further, many traders stayed on the sidelines ahead of the scheduled release of the minutes of the US Federal Reserve’s December policy meet, scheduled for release before market hours on Thursday.
“Don’t read too much into price movements here, it’s largely a function of the lack of liquidity today, there’s not too much to be said for sentiment on days like these,” a dealer at a state-owned bank said.
Some investors stepped up purchases at prices considered low, especially those of longer maturities, after the bonds fell sharply on Monday. The 6.10%, 2031 bond and 14-year benchmark 6.67%, 2035 bond had plunged over 40 paise each.
Today, yield on the 10-year benchmark 6.10%, 2031 bond is seen at 6.50-6.56%. (Aaryan Khanna)
India Gilts: Steady as traders await RBI steps to provide cues
NEW DELHI–1150 IST–Government bonds were steady today because traders refrained from placing large bets amid a lack of significant domestic cues, with some waiting for the Reserve Bank of India to step in and take measures to cap rising yields, said dealers.
Traders were of the view that with yields reaching the pre-pandemic levels, the RBI may step in to cap their rise.
“The yield may move towards 6.60% level if there is no intervention from the RBI. We may see high cutoff in auctions also and RBI can’t cancel auction all the time,” said a chief dealer at a state-owned bank.
Meanwhile, volumes were muted as attendance at Treasury desks remains low due to a rise in COVID-19 cases and subsequent restrictions imposed on movement throughout the country.
The market opened sharply lower today on account of erroneous trades by some market participants, said dealers.
The 10-year benchmark 6.10%, 2031 gilt was dealt 96.90 rupees or 6.54% yield, which could be account of an erroneous trade by some market participants, dealers said. (Shubham Rana)
India Gilts: Seen steady on lack of cues, hopes of RBI capping yields
NEW DELHI – Government bonds may open steady today because traders are likely to refrain from large bets due to lack of significant domestic cues, while some expect the Reserve Bank of India to introduce measures to cap the rise in yields.
Even though the central bank has refrained from announcing such measures to cap the rise in yields, traders believe that with bond yields nearing pre-pandemic levels, the central bank could come out with a one-off Operation Twist to anchor yields.
Yields rose sharply on Tuesday even after the central bank had signalled its discomfort with their elevated levels at Friday’s weekly auction, where it rejected all bids for the floating rate bond 2028 and the 6.10%, 2031 bond.
Yield on the 10-year benchmark 6.10%, 2031 bond rose around 6 basis points yesterday and settled at 6.5173%, the highest level since Jan 31, 2020, noting a jump in US Treasury yields.
US Treasury yields started the year with a sharp rise as investors believe that the Federal Reserve is likely to hike interest rates thrice in 2022 and could also look to unwind its pandemic-era monetary policy support in a haste despite the fast-spreading Omicron variant of coronavirus.
On Tuesday, yield on the 10-year US Treasury bond ended at 1.66% against Monday’s close of 1.63%.
According to dealers, the market may remain steady but if yield on the 10-year benchmark 6.10%, 2031 gilt rises above the 6.52% level, then it may spiral up to 6.56% levels. Traders expect investors to step up their purchases of dated securities around the 6.50-6.52% level, which is seen lucrative after Tuesday’s rise.
Trade volumes may remain in a thin range as attendance at treasury desks has been impacted due to rising cases of COVID-19, with treasury desks already moving to a work-from-home system as a precaution.
Today, yield on the 10-year benchmark 6.10%, 2031 bond is seen at 6.50-6.56%. (Shubham Rana)
End
US$1 = 74.36 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Maheswaran Parameswaran
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