Informist, Tuesday, Feb 15, 2022
By Shubham Rana
NEW DELHI – Government bonds came off highs and ended lower today because US Treasury yields jumped as Russia-Ukraine border tensions were seen easing after media reports cited a Russian defence ministry spokesperson saying some of their troops were returning to bases after completing drills, dealers said.
The yield on the 10-year benchmark US Treasury bond jumped to 2.04% from 1.99% at close on Monday because investors moved away from safe haven assets such as US Treasury bonds on reports of geopolitical tensions easing. 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 to foreign investors.
Today, the 10-year benchmark 6.54%, 2032 bond settled at 99.04 rupees or 6.67% yield, against 99.08 rupees or 6.67% yield on Monday.
While yields on most bonds ended 2-3 basis points higher, the benchmark 10-year 2032 bond ended at the same yield level as on Monday.
“Right now, there is not a lot of outstanding (stock) in the 6.54% bond, so shorts are not being created in that bond as much as compared to 6.10%, 2031 bond or others,” a dealer with a private bank said.
Traders placed short bets as US yields rose. Traders had earlier booked profits noting a sharp rise in bond prices since Thursday, following the Reserve Bank of India’s accommodative policy outcome and cancellation of gilt auctions by the government.
Market sentiment was buoyed on Thursday after the RBI left the reverse repo rate unchanged at 3.35%, and projected easing of inflation by 80 basis points on year to 4.5% in 2022-23 (Apr-Mar), dealers said.
At the day’s high today, the 10-year benchmark 6.54%, 2032 bond was up 130 paise from the close on Wednesday, prompting traders to trim their holdings and book profits, dealers said.
“There is no auction this week, so we saw buying in the start, but then traders booked profits as there is no major event or data release lined up and some short must also have been created,” the dealer said.
Bonds had opened higher today as traders covered their short bets after the 240-bln-rupee weekly gilt auction was cancelled for the second straight week, pushing up prices.
The RBI on Monday cancelled the weekly gilt auction for Friday in consultation with the Centre, after reviewing the government’s cash balance.
The Centre was scheduled to raise 240 bln rupees through the sale of four gilts on Friday, including those maturing in 5 and 14 years, according to the Oct-Mar borrowing calendar. Last week, too, the government had skipped the 240 bln rupees in scheduled borrowing while it raised only a part of the 240 bln rupees at the previous auction.
The Centre’s borrowing calendar pegs its last gilt issuance for the current financial year in the week ending Feb 25, with an auction of 230 bln rupees through three bonds, which is also expected to be cancelled.
Instead of borrowing from the market in the 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, which is expected to raise around 750 bln rupees for the government.
The losses were limited because Brent crude prices eased from seven-year-high levels as tensions over the Russia-Ukraine crisis eased.
According to data on RBI’s Negotiated Dealing System – Order Matching platform, market-wide turnover was 334.40 bln rupees, against 420.10 bln rupees on Monday.
OUTLOOK
Government bonds are seen opening steady on Wednesday amid lack of significant cues.
Traders may step up purchases amid lack of fresh supply of dated securities this week after the government cancelled the 240-bln-rupee weekly debt sale, citing a review of its cash balance position, for the second week in a row.
Any sharp movement in US bond yields and crude oil prices may also steer domestic bonds early in trade.
The yield on the 10-year benchmark 6.54%, 2032 bond is seen at 6.62-6.72%.
India Gilts: Down on rise in US ylds as Russia-Ukraine tensions ease
NEW DELHI–1515 IST–Government bonds fell tracking a rise in US Treasury yields because the Russia-Ukraine border tension was seen easing after media reports cited a Russian defence ministry spokesperson as saying that some of its troops are returning to bases after a number of drills were finished.
Investors moved away from safe haven assets such as US Treasury bonds on reports of the geopolitical tension easing, leading to a jump in bond yields, dealers said.
The yield on the 10-year benchmark US Treasury bond jumped to 2.04% against 1.99% at close on Monday.
“UST (US treasury yields) has risen to 2.03% (on the 10-year bond) with the trigger being the news of Russia withdrawing troops (from Ukraine borders) so the UST which was supported till now is experiencing a sell-off, that is the major reason (for fall in domestic bonds),” a dealer with a state-owned bank said.
However, losses were limited because of a fall in Brent crude prices as tensions over the Russia-Ukraine crisis eased. Brent crude futures fell over 2% today and traded at $94.25 per barrel as compared to $96.48 per bbl at close on Monday.
Earlier, gilts came off highs as traders booked profits noting sharp rise in prices since Thursday, following the Reserve Bank of India’s accommodative policy outcome and cancellation of gilt auctions by the government.
At the day’s high, the 10-year benchmark 6.54%, 2032 bond was up 130 paise from the close on Wednesday, prompting traders to trim their holdings and book profits, dealers said.
Bonds had surged at open today after the government cancelled the 240-bln-rupee weekly gilt auction on Friday for the second straight week.
Today, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 6.65-6.70%. (Shubham Rana)
India Gilts: Off highs on profit booking after short covering ends
NEW DELHI–1150 IST–Most government bonds gave up gains as traders booked profits noting a sharp rise in prices since Thursday, following the Reserve Bank of India’s accommodative policy outcome and cancellation of gilt auctions by the government.
At the day’s high, the 10-year benchmark 6.54%, 2032 bond was up 130 paise from the close on Wednesday, prompting traders to trim their holdings and book profits, dealers said.
On Thursday, market sentiment was buoyed 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.
Earlier today, government bonds jumped as traders covered their short bets after the government skipped its weekly gilt auction for the second straight week, pushing up prices as supply eased.
In a release after market hours on Monday, the RBI cancelled the weekly gilt auction for Friday in consultation with the Centre, after reviewing the government’s cash balance.
According to the Oct-Mar borrowing calendar, the Centre was to raise 240 bln rupees through gilts on Friday, including those maturing in 5 and 14 years. Last week, too, the government had foregone 240 bln rupees in scheduled borrowing.
“Banks are unwilling to commit to long positions despite the cancellation and eventually when the short covering got over, people starting booking profit instead of taking fresh positions at the 6.62% (10-year benchmark yield) level,” a dealer at a private bank said.
The Centre’s borrowing calendar pegs its last gilt issuance for the current financial year in the week ending Feb 25, with an auction of 230 bln rupees through three bonds.
Today, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 6.60-6.67%. (Aaryan Khanna)
India Gilts: Seen up after govt skips weekly borrow for second week
NEW DELHI – Government bonds are seen up after the Reserve Bank of India, in consultation with the government, cancelled the weekly gilt auction for the second week in a row, which may prompt traders to step up purchases due to the lack of fresh supply.
In a release after market hours on Monday, the RBI cited a review of the cash balance position of the government as the reason for the cancellation. According to the Oct-Mar gilt issuance calendar, the government was scheduled to raise 240 bln rupees through four bonds at the auction this week.
The RBI had also cancelled the weekly gilt auction citing the same reason last week, when the Centre had skipped borrowing a similar amount through three bonds.
The 5.74%, 2026 and 6.67%, 2035 bonds may lead the gains as papers in those maturities were set to be auctioned this week. Traders who had taken short bets in these papers on an auction being announced may rush to cover their positions, dealers said.
Sustained lack of supply over the last few weeks has turned market sentiment upbeat despite the massive upcoming borrowing in 2022-23 (Apr-Mar), when the government is scheduled to raise a record 14.95 trln rupees through gilts. Even before last week’s cancellation, the Centre raised only 105.25 bln rupees at the last weekly gilt auction conducted on Feb 4.
Moreover, with the government’s scheduled issuance running out in the week ending Feb 25, and state bond issuances remaining lower than expected so far, investors may step up purchases despite a recent slide in yields, dealers said. Eight states are looking to raise 121 bln rupees at auction today.
Meanwhile, data released by the government after market hours on Monday showed CPI inflation in January surged to a seven-month high of 6.01%, in line with the estimates in a poll by Informist.
Despite touching the top of the RBI’s comfort band of 2-6%, inflation was seen peaking in January as an unfavourable base effect fades, which could keep monetary policy accommodative in the near term as policymakers had indicated, dealers said.
However, global headwinds may cap the gains in domestic gilts, as dealers remain wary of a jump in Brent crude towards the psychologically crucial $100-per-bbl mark.
Futures surged over 2% on Monday to their highest level in more than seven years due to worries that Russia could invade Ukraine any time that could trigger sanctions from the US and European nations, thereby disrupting exports from one of the world’s top producers.
The Brent crude oil futures contract for April delivery settled over $2-per-bbl higher at $96.48-per-bbl on Monday. Typically, a rise in crude oil prices increases risks of imported inflation in India and provides less room for the RBI to prolong its monetary policy accommodation.
Today, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 6.60-6.67%. (Aaryan Khanna)
End
US$1 = 75.33 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Avishek Dutta
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