Informist, Thursday, Jun 2, 2022
By Shubham Rana
NEW DELHI – Government bonds ended lower today as traders made room for fresh supply ahead of the 320-bln-rupee weekly gilt auction on Friday, dealers said.
Trade volumes were dismal as traders were wary of placing large bets, with demand for gilts seen muted ahead of a likely rate hike by the Reserve Bank of India’s Monetary Policy Committee next week, dealers said.
The 10-year benchmark 6.54%, 2032 bond settled at 93.92 rupees, or 7.43% yield, against 94.05 rupees, or 7.41% yield on Wednesday.
“Everyone is very quite right now before the policy next week,” a dealer at a private bank said. “The sharply high cut-off at the 364-day T-bill auction yesterday also forced traders to stay on the sidelines.”
Traders opted to short sell the 10-year benchmark 6.54%, 2032 gilt and the 5.74%, 2026 bond, instead of the other dated securities to be sold at the auction, because of their higher liquidity, dealers said.
Losses were limited in the 6.67%, 2035 bond due to a large volume of short bets in the gilt. Moreover, the lack of fresh supply in the gilt, after the introduction of the 7.54%, 2036 bond, led to traders preferring to hold the gilt at elevated yields, dealers said.
“Right now nobody wants to take a large short position,” a dealer at a state-owned bank said. “If the RBI hikes less than 50 bps, then it will become an issue for the people who have large amount of short positions.”
Moreover, a rise in overnight indexed swap rates weighed on long-term bonds as traders paid fixed rates in interest rates swaps while opting to trim their portfolios of gilts ahead of the policy review next week, during which the rate-setting panel is expected to raise the repo rate by 40-50 bps, dealers said.
Globally, a rise in US Treasury yields offset a sharp fall in crude oil prices, leaving traders with limited triggers today, dealers said.
After rising on Wednesday, crude oil prices slumped today following reports that Saudi Arabia may ramp up supply to make up for any lag in Russian oil production due to Western sanctions.
The Brent crude contract for August delivery fell to $113 per barrel today, against Wednesday’s settlement of $116.29 per bbl.
Typically, a fall in crude oil prices lowers the risk of imported inflation in India and provides more room for the RBI to prolong its monetary policy accommodation.
US Treasury yields surged for a second straight day on Wednesday, as aggressive rate hike fears mounted due to strong US manufacturing activity in May, which could enable the Fed to push up rates further without risking recession.
Investors now eye another possible 50-basis-point hike by the Federal Open Market Committee at its upcoming meetings, in addition to the two already expected in June and July. The yield on the 10-year benchmark US Treasury note jumped 8 basis points on Wednesday to 2.93%.
According to data on RBI’s Negotiated Dealing System – Order Matching platform, the market-wide turnover was 217.90 bln rupees compared with 296.25 bln rupees on Wednesday.
OUTLOOK
On Friday, government bonds are seen steady as traders may refrain from placing large bets before the 320-bln-rupee weekly auction, the last gilt auction before the Monetary Policy Committee meeting outcome on Wednesday.
The government has offered to sell 90 bln rupees of the 5.74%, 2026 gilt, 40 bln rupees of the 2028 floating rate bond, 100 bln rupees of the 7.54%, 2036 gilt, and 90 bln rupees of the 6.99%, 2051 gilt.
Traders will keep an eye on any sharp movement in crude oil prices or US Treasury yields for triggers.
The yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.39-7.46%.
India Gilts: Dn on caution before auction, MPC meet; OIS rise weighs
NEW DELHI–1410 IST–Government bonds traded lower on caution before the 320-bln-rupee weekly gilt auction on Friday, with demand for gilts seen muted ahead of a likely rate hike by the Monetary Policy Committee next week, dealers said.
Owing to their higher liquidity, traders opted to short-sell the 10-year benchmark 6.54%, 2032 gilt and the 5.74%, 2026 bond instead of the other dated securities at the debt sale, dealers said.
Losses were limited in the 6.67%, 2035 bond due to a large volume of short bets in the gilt. Moreover, the lack of fresh supply in the gilt, after the introduction of the 7.54%, 2036 bond, led to traders preferring to hold the gilt at elevated yields, dealers said.
Moreover, a rise in overnight indexed swap rates weighed on long-term bonds as traders paid fixed rates in interest rates swaps while opting to trim their portfolios of gilts ahead of the policy review next week, at which the rate-setting panel is expected to raise the repo rate by 40-50 bps, dealers said.
“Corporate receiving has kept the five-year OIS muted below 7%, but support has come in today on the receiving side, which has led to the swaps now weighing on gilt prices again, as they have been doing occasionally over the past month,” a dealer at a private bank said.
During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.37-7.45%. (Aaryan Khanna)
India Gilts: Steady as jump in US ylds offsets slump in crude prices
NEW DELHI–0925 IST–Government bonds were steady because a rise in US Treasury yields offset a sharp fall in crude oil prices, leaving traders with limited triggers ahead of the weekly gilt auction on Friday, dealers said.
While the fall in oil prices was expected to spur some buys early in the day, the Brent crude contract for August delivery recovered some losses in Asian trade and could not outweigh the impact of US yields, dealers said. The yield on the 10-year benchmark US note rose 8 basis points on Wednesday to 2.93%.
Meanwhile, traders opted to short-sell the 10-year benchmark 6.54%, 2032 gilt and the 5.74%, 2026 bond due to lack of liquid securities at the debt sale, dealers said.
At earlier auctions, traders had been stocking up on bonds on which they had placed short bets in the run-up to the bond issuance. Owing to lack of on-the-run gilts this week, as well as limited short bets in the market, demand is seen muted.
“We have already seen the Treasury bill auction go haywire ahead of the policy, so right now the intention seems to be that yields have to move higher,” a dealer at a primary dealership said.
Meanwhile, volumes were muted as dealers were wary of placing large bets ahead of June policy review next week, at which the Monetary Policy Committee is expected to hike the repo rate by 50 basis points.
Today, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.37-7.45%. (Aaryan Khanna)
India Gilts: Seen up on slump in crude; auction Fri, MPC meet eyed
NEW DELHI – Government bonds may open higher following a slump in crude oil prices, but may give up gains during the day due to caution ahead of the weekly gilt auction and the policy review next week, dealers said. A rise in prices may also be partly offset by a sharp overnight rise in US Treasury yields.
After rising on Wednesday, crude oil prices slumped in Asian trade following reports that Saudi Arabia had signalled it was ready to ramp up supply to make up for any lag in Russian oil production due to Western sanctions.
The Brent crude contract for August delivery slumped nearly 2% from Wednesday’s settlement to $114.22 per barrel today, comfortably below the $120 mark it had reached last week, which may spur buys from domestic gilt traders.
Typically, a fall in crude oil prices lowers the risk of imported inflation in India and provides more room for the Reserve Bank of India to prolong its monetary policy accommodation.
US Treasury yields surged for the second straight day as aggressive rate hike fears mounted due to strong US manufacturing activity in May, which could enable the Fed to push up rates further without risking recession.
Investors now eye another possible 50-basis-point hike by the Federal Open Market Committee at its upcoming meetings, in addition to the two already expected in June and July. The yield on the 10-year benchmark US Treasury note jumped 8 basis points on Wednesday to 2.93%.
Like Monday, traders expect the 10-year benchmark yield to trade in a narrow band until the outcome of the Monetary Policy Committee’s meeting on Jun 8, at which the domestic rate-setting panel is expected to raise the repo rate by 50 basis points.
Moreover, traders are seen keeping to the sidelines ahead of the weekly gilt auction. The government has offered to sell 90 bln rupees of the 5.74%, 2026 gilt, 40 bln rupees of the 2028 floating rate bond, 100 bln rupees of the 7.54%, 2036 gilt and 90 bln rupees of the 6.99%, 2051 gilt.
Demand for gilts at the auction may be muted, as traders do not have large short bets to cover at the auction, particularly in the 7.54%, 2036 bond, which was only issued at the previous auction and is not heavily traded, dealers said.
Today, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.37-7.45%, as against 7.41% on Wednesday. (Aaryan Khanna)
End
US$1 = 77.61 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Tanima Banerjee
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