Informist, Thursday, Apr 28, 2022
By Shubham Rana
NEW DELHI – Government bond prices ended sharply lower today because traders persistently trimmed their holdings to make space for the upcoming 330 bln rupees of fresh supply on Friday, dealers said.
The government has offered to sell 40 bln rupees of the 4.56%, 2023 gilt, 70 bln rupees of the 7.10%, 2029 bond, 130 bln rupees of the 6.54%, 2032 gilt and 90 bln rupees of the 6.95%, 2061 gilt.
The 10-year benchmark 6.54%, 2032 bond settled at 95.73 rupees, or 7.16% yield, against 96.22 rupees, or 7.08% yield on Wednesday.
“This rise in yields today was expected to happen because there is an auction tomorrow and people will place short bets,” said a dealer at a private bank. “With this large quantum of short positions, the auction should sail through.”
Traders placed fresh short bets on the 10-year benchmark 6.54%, 2032 bond on expectations that investors may demand higher yields on the paper at the auction on Friday. Traders are confident of covering their short bets at the auction as the government will sell 130 bln rupees of the 2032 paper.
At the previous auction of the 6.54%, 2032 bond on Apr 13, the Reserve Bank of India had set a cutoff of 7.24%. With the recent fall in gilt yields, investors were keen on receiving 7.15-7.25% on the 2032 bond they had bid for at the auction, dealers said.
“One way or another, banks would have asked for a yield over 7.15% at the auction. It’s good that the yield moved up today, otherwise the bids would have been completely out of market,” said a dealer at a state-owned bank.
Moreover, the recent fall in bond yields was considered unwarranted by some dealers in a rising interest rate environment and in the face of a record supply of gilts.
Traders were also wary that the increased outlay on fertiliser subsidy may put pressure on the government’s cash balance, which is already under strain, as it could raise the prospects of additional market borrowing, dealers said.
According to data on the RBI’s Negotiated Dealing System – Order Matching platform, the market-wide turnover was 356.05 bln rupees compared with 278.80 bln rupees on Wednesday.
OUTLOOK
Government bonds are seen opening down on Friday as traders may place short bets before the 330-bln-rupee auction, dealers said.
Some traders may stay on the sidelines before the result of the auction.
Any sharp movement in crude oil prices and US Treasury yields may lend cues when the market opens.
Yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.13-7.22%.
India Gilts: Remain down on caution before 330-bln-rupee auction Fri
NEW DELHI–1310 IST–Government bonds remained lower as traders maintained caution ahead of the 330-bln-rupee auction on Friday, dealers said.
Traders placed fresh short bets ahead of the fresh supply, especially in the 10-year benchmark 6.54%, 2032 bond.
The government has offered to sell 40 bln rupees of the 4.56%, 2023 gilt, 70 bln rupees of the 7.10%, 2029 bond, 130 bln rupees of the 6.54%, 2032 gilt and 90 bln rupees of the 6.95%, 2061 gilt.
“There is no pressure to cover shorts (short positions) unlike last week because the positions are still lower than the auction size of 130 bln rupees (of the 6.54%, 2032 gilt), so those who want to cover from stock can do so easily,” a dealer at a private bank said.
At the previous auction of the 6.54%, 2032 bond, the Reserve Bank of India set a cutoff of 7.24%, and with the recent fall in gilt yields, investors may demand higher yields on the 10-year paper, dealers said.
Today, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.08-7.15%. (Shubham Rana)
India Gilts: Down ahead of auction Fri; rise in US yields weighs
NEW DELHI–1010 IST–Government bonds fell ahead of a 330-bln-rupee weekly gilt auction as traders trimmed their holdings to make room for the fresh supply on Friday, dealer said.
Investors were seen demanding higher yields on the 130 bln rupees of the 10-year benchmark 6.54%, 2032 bond offered for sale, leading traders to place fresh short bets ahead of the issuance, dealers said.
Traders also booked some profits after the recent rise in prices on the view that market appetite would slump in the face of record supply as well as rate hikes, dealers said.
The 10-year benchmark yield had climbed to as high as 7.28% earlier this month after the outcome of the Monetary Policy Committee showed that mounting inflation concerns may signal an early end to accommodation.
“Investor-side buying had supported the market over the past week, that is falling off as they have made their money and are looking for exits,” a dealer at a private bank said.
“The jump to 7.25% (yield on the 10-year benchmark) after the policy looks to have been overdone, now the rise in yield will be more gradual,” the dealer said.
The yield on the 10-year benchmark US Treasury note settled 5 bps higher at 2.82% on Wednesday,
Today, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.08-7.15%. (Aaryan Khanna)
India Gilts: Seen down on rise in US yields, ahead of auction Fri
NEW DELHI – Government bonds may open lower as traders trim their holdings to make room for the upcoming supply at the weekly gilt auction on Friday, dealers said.
The government has offered to sell 40 bln rupees of the 4.56%, 2023 gilt, 70 bln rupees of the 7.10%, 2029 bond, 130 bln rupees of the 6.54%, 2032 gilt and 90 bln rupees of the 6.95%, 2061 gilt.
Investors may step up purchases in the 10-year benchmark 6.54%, 2032 bond at the psychologically-crucial 7.10% yield, particularly to cover the large quantum of short bets already in the paper, dealers said.
US Treasury yields rose on Wednesday as investors reconsidered the outlook for global economic growth amid geopolitical and COVID-19 concerns ahead of the US Federal Reserve’s policy review next week, at which it is expected to hike rates by 50 basis points.
The yield on the 10-year benchmark US Treasury note settled 5 bps higher at 2.82% on Wednesday.
Comments by Monetary Policy Committee external member Jayanth R. Varma on Wednesday may also weigh on the market.
The rate-setting panel may not need to warn the market before taking action to curb runaway inflation, which had stayed at 5.5% for too long instead of the Reserve Bank of India’s target of 4%, Varma said in an interview with NewsRise.
Moreover, the increased outlay on fertiliser subsidy may put pressure on government cash balances, which are already under strain, and raise the prospects of additional market borrowing, dealers said.
The Cabinet on Wednesday approved a subsidy of 609.4 bln rupees for phosphatic and potassic fertilisers for the kharif season (Apr-Sep).
However, losses are expected to be limited by a slump in crude oil prices today as investors assessed the muted outlook for the global economy.
The Brent crude contract for July delivery fell to $103.45 a barrel in Asian trade today, down $1.50 a bbl from Wednesday’s settlement.
Today, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.06-7.12%, as against 7.08% on Wednesday. (Aaryan Khanna)
End
US$1 = 76.48 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Ashish Shirke
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