Informist, Monday, Feb 14, 2022
By Shubham Rana
NEW DELHI – Government bonds recouped early losses and ended higher today because of short covering by traders on speculation that the Centre may not hold the 240-bln-rupee gilt auction this week.
Instead of borrowing from the market in remainder of 2021-22 (Apr-Mar), the Centre is seen dipping into its sizeable cash balances, particularly with the announcement of Life Insurance Corp of India’s initial public offering.
On Sunday, the country’s largest insurer filed its draft red herring prospectus with the Securities and Exchange Board of India. The Centre is expected to raise around 750 bln rupees from the issue for 5% of its stake.
According to the borrowing calendar for Oct-Mar issued in September, the Centre is scheduled to raise another 470 bln rupees through gilts over the next two weeks.
In consultation with the Centre, the Reserve Bank of India had cancelled last week’s gilt auction citing a review of the cash balance position of the government. The Centre was expected to raise 240 bln rupees from the auction.
“The news right now is that there won’t be any further supply this (financial) year. The second thing is that market is quite short right now. There are many players in the market who want to invest right now like insurance companies. If there is no supply then they will buy from secondary (market),” a dealer with a private bank said.
“Whenever there is some buying from investors, traders come under pressure to cover short bets.”
Today, the 10-year benchmark 6.54%, 2032 bond settled at 99.08 rupees or 6.67% yield, against 98.86 rupees or 6.70% yield on Friday.
The 6.67%, 2035 bond rose the most, with the yield on the bond falling below the 7.00% mark for the first time in over a month, as it is scheduled to be auctioned this week and traders covered their short bets anticipating no issuance on Friday.
The 14-year benchmark 6.67%, 2035 bond settled at 97.20 rupees or 6.99% yield, against 96.80 rupees or 7.03% yield on Friday.
Some traders had placed short bets noting the sharp rise in gilt prices over the previous two trading sessions after the RBI left the reverse repo rate unchanged at the monetary policy committee’s meeting outcome, dealers said.
Market sentiment has remained upbeat ever since the RBI refrained from hiking the reverse repo rate, and projected an 80 basis points fall in inflation to 4.5% in 2022-23 (Apr-Mar), dealers said.
Bonds fell earlier in the day because Brent crude oil prices breached the psychologically-crucial $95-per-bbl mark because of tight supply and rising tension between Russia and Ukraine, dealers said.
Crude oil futures had surged to a fresh seven-year high on Friday as escalating fears of Russia invading Ukraine added to concerns about tight global crude supplies.
Brent crude oil futures for April delivery settled over $3 higher at $94.44 per bbl on Friday, and today rose over the key $95-per-bbl mark in Asian trade.
Some traders were also wary of the central bank announcing a weekly gilt auction worth 240 bln rupees after market hours, which would push gilt yields sharply higher, dealers said.
Some traders were also cautious as they await CPI data, due after market hours today.
India’s retail inflation rate based on CPI (Combined) is seen rising to a seven-month high of 6.0% in January, primarily on the back of an unfavourable base, according to an Informist poll of 21 economists. CPI inflation rate was at 5.59% in December and 4.06% a year ago.
“Today the (RBI) governor said that don’t be surprised if CPI print comes at 6%, so if they have discounted it the market won’t react even if inflation comes at 6.0-6.5%,” the dealer said.
According to data on RBI’s Negotiated Dealing System – Order Matching platform, market-wide turnover was 420.10 bln rupees, against 337.15 bln rupees on Friday.
OUTLOOK
On Tuesday, government bonds will take cues from the CPI data and the gilt auction announcement, both due later today.
A higher than expected CPI print may lead to bonds opening lower on Tuesday.
The market does not expect the Centre to hold the weekly auction this Friday, and cancellation of the auction will push gilts higher on Tuesday.
In case the Centre or the RBI notify an auction for this week, yield on the 10-year benchmark 6.54%, 2032 bond may jump to the 6.73-6.76% mark.
Any sharp movement in US bond yields and crude oil prices may also steer domestic bonds early in trade.
Yield on the 10-year benchmark 6.54%, 2032 bond is seen at 6.62-6.72%.
India Gilts: Rise on expectation Centre may cancel Fri weekly auction
NEW DELHI–1430 IST–Government bonds recovered early losses and rose because traders speculated that the Centre may not borrow 240 bln rupees worth of gilts through an auction this week.
The Centre is expected not to hold any further gilt auctions in 2021-22 (Apr-Mar) because of its sizeable cash balance and the announcement of Life Insurance Corp of India’s initial public offering, dealers said.
On Sunday, India’s largest insurer filed its draft red herring prospectus, and the issue may fetch the Centre around 750 bln rupees for a 5% stake, dealers said.
According to the borrowing calendar for Oct-Mar issued in September, the Centre is scheduled to raise another 470 bln rupees through gilts over the next two weeks. The Reserve Bank of India, in consultation with the Centre, had cancelled last week’s gilt auction, where the Centre was expected to raise 240 bln rupees, citing a review of the cash balance position of the government.
Gains were seen in the 6.67%, 2035 bond as the bond was scheduled to be auctioned this week, according to the borrowing calendar for Oct-Mar. The yield on the 2035 bond fell below the 7.00% mark for the first time in over a month today.
“People are expecting that the government won’t hold an auction and the 6.67% (bond) was scheduled to go on sale this week, so people are covering (their short bets) in the paper,” a dealer with a state-owned bank said.
Market sentiment has remained upbeat ever since the RBI refrained from hiking the reverse repo rate, and guided for easing of inflation by 80 basis points on year to 4.5% in 2022-23 (Apr-Mar), dealers said.
Bonds had fallen earlier because Brent crude oil prices had jumped past the psychologically-crucial $95-per-bbl mark amid tight supply and rising geopolitical tension between Russia and Ukraine, dealers said.
Brent crude oil prices came below the $95 per bbl mark during the day, which buoyed the market more, dealers said.
Today, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 6.66-6.73%. (Shubham Rana)
India Gilts: Dn on jump in crude above $95/bbl, geopolitical tension
NEW DELHI–1055 IST–Government bonds fell due to a jump in Brent crude prices above the psychologically-crucial $95-per-bbl mark amid tight supply and rising geopolitical tension between Russia and Ukraine, dealers said.
Sustained gains in crude oil prices could disrupt the accommodative monetary policy on the domestic front after the policy meet last Thursday indicated that the Reserve Bank of India was in no hurry to phase out monetary policy accommodation in the near future, dealers said.
“Crude is one factor that could really pressure RBI’s accommodation if inflation rises, and the market will not look at anything but will cut (gilt holdings) if the border tensions (in Ukraine) actually turn into a war on the ground,” a dealer at a state-owned bank said.
Losses were limited as traders do not expect the Centre to issue any more gilts in the current financial year. Last week, the RBI had cancelled the auction at which the government was expected to borrow 240 bln rupees, citing the Centre’s cash balances.
According to the borrowing calendar for Oct-Mar issued in September, the Centre is scheduled to raise another 470 bln rupees through gilts over the next two weeks.
However, some traders placed short bets noting the sharp rise in gilt prices over the previous two days on speculation about the government’s lack of borrowing and the RBI policy outcome, dealers said.
Traders were wary that the central bank could announce a weekly gilt auction worth 240 bln rupees as scheduled after market hours today, which would push gilt yields sharply higher, dealers said.
At Friday’s close, the 10-year benchmark 6.54%, 2032 bond had jumped 71 paise since Wednesday, after the RBI refrained from hiking the reverse repo rate and projected consumer inflation easing by 80 basis points on year to 4.5% in 2022-23 (Apr-Mar).
Today, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 6.67-6.75%. (Aaryan Khanna)
India Gilts: Seen steady; cues on govt borrowing in FY22 eyed
NEW DELHI – Government bonds are seen steady as traders may await further cues on the government’s borrowing plans for the rest of the financial year ending March, after speculation on Friday that the Centre might cancel the two remaining scheduled gilt auctions, dealers said.
The Reserve Bank of India, in consultation with the Centre, had cancelled last week’s gilt auction, where the Centre was expected to raise 240 bln rupees, citing a review of the cash balance position of the government.
Instead of borrowing from the market, the Centre is seen dipping into its sizeable cash balances for the remainder of the year as well, particularly with the announcement of the Life Insurance Corp of India’s initial public offering. The insurance behemoth filed its draft red herring prospectus to be listed on equity indices on Sunday, and the issue may fetch the Centre around 750 bln rupees for 5% stake, dealers said.
Market sentiment is also upbeat after the RBI refrained from hiking the reverse repo rate, and guided for easing of inflation by 80 basis points on year to 4.5% in 2022-23 (Apr-Mar), dealers said.
Should the RBI notify an auction for this week after market hours, the yield on the 10-year benchmark 6.54%, 2032 bond may jump to the 6.75-6.80% mark, dealers said.
Moreover, mixed global cues may sour the mood somewhat, as crude oil prices jumped towards the crucial $100-per-bbl mark.
Futures surged to fresh seven-year high on Friday as escalating fears of an invasion of Ukraine by Russia added to concern over tight global crude supplies.
The Brent crude oil futures contract for April delivery settled over $3-per-bbl higher at $94.44-per-bbl on Friday, and was further up over the key $95-per-bbl mark in Asian trade today.
Sustained elevation in crude oil prices is seen as the one thing disrupting the accommodative monetary policy on the domestic front. Traders were optimistic that the RBI might keep rates lower for longer if inflation remains in its 2-6% comfort band, which it projects will happen for all of 2022-23 (Apr-Mar), dealers said.
However, US Treasury yields fell on Friday as investors rushed to safe-haven assets amid the escalated geopolitical tensions between Russia and Ukraine, which may support domestic gilts, dealers said.
The yield on the 10-year benchmark US Treasury note fell 11 bps to settle at 1.95% on Friday, and was last at 1.96% in Asian trade today.
Today, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 6.66-6.73%. (Aaryan Khanna)
End
US$1 = 75.61 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Ashish Shirke
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