Informist, Wednesday, Jul 27, 2022
By Shubham Rana
NEW DELHI – Prices of government bonds ended higher today as the five-year overnight indexed swap rate fell and as traders covered short bets before the outcome of the US Federal Open Market Committee’s meeting later today, dealers said.
The 10-year 6.54%, 2032 bond settled at 94.62 rupees or 7.34% yield, against 94.43 rupees or 7.37% yield on Tuesday.
While traders stayed on the sidelines for a large part of the trade today, keeping volumes muted, they rushed to cover their short bets in the last two hours of the session, dealers said.
The US Federal Reserve’s rate-setting committee is expected to raise the federal funds rate target range by 75 basis points today to tackle 40-year-high inflation in the US.
According to the CME FedWatch tool, more than three-quarters of respondents expect a 75-basis-point increase at the outcome of the US Federal Reserve’s two-day policy review. The rest anticipate a 100-bps rate hike.
Corporate houses were active in the OIS market today, as they looked to hedge their fixed-rate liability on bonds issued recently, dealers said.
The five-year OIS fell to 6.39% today from Tuesday’s close of 6.43%.
“There were talks in the market about a large corporate hedging in gilts on Tuesday and this rumour continues to spur the market higher today,” a dealer at a state-owned bank said. “Fed’s commentary on growth and inflation today is just as important as the size of the rate hike itself, and our market on Thursday will take cues from the commentary as well.”
The US rate decision and commentary are expected to lend cues to RBI’s Monetary Policy Committee at its meeting next week.
Recent comments by members of India’s rate-setting panel, including RBI Governor Shaktikanta Das, suggested inflation has peaked. They have also flagged the negative impact on growth due to sharp monetary policy tightening.
A higher-than-expected rate hike in the US may push the Monetary Policy Committee to hike rates more than the anticipated 50 bps to arrest capital outflows and support the weakening rupee, dealers said.
Today, cut-off prices at the Treasury-bill auction were set sharply higher than the cut-offs set at the auction on Jul 20, particularly in the 91-day T-bill, due to narrowing liquidity in the banking system.
The RBI set a cut-off of 98.6175 rupees or 5.62% yield, on the 91-day Treasury bill, 22 basis points higher than last week’s cut-off. The cut-off was seen at 98.6230 rupees, or 5.60% yield, according to 17 bond dealers polled by Informist.
The RBI set the cut-off on the 182-day T-bill at 97.1051 rupees or 5.98%, 13 bps higher than last week. The cut-off on the 364-day T-bill was at 94.0622 rupees or 6.33%, 9 bps higher than the previous auction.
The inter-bank call money rate was sharply above the RBI’s repo rate of 4.90% today due to firm demand from banks to meet their funding requirements as liquidity narrowed further, dealers said.
The one-day call money rate ended at 4.40% today, flat against Tuesday. The call money rate rose to 5.45% during the day.
Liquidity in the banking system is currently estimated to be in a surplus of over 498.77 bln rupees as against 737.41 bln rupees on Tuesday. The surplus liquidity is the lowest since September 2019.
The central bank announced a three-day variable rate repo auction for a notified amount of 500 bln rupees on Tuesday, following a surge in overnight borrowing rates in money markets.
“If your call money rate is above the repo rate and close to the marginal standing facility rate, then it shows how tight liquidity is,” a dealer at a private bank said.
According to data on RBI’s Negotiated Dealing System – Order Matching platform, the market-wide turnover was 308.10 bln rupees, compared with 263.45 bln rupees on Tuesday.
OUTLOOK
At open on Thursday, government bond prices may take cues from the outcome of the US Federal Open Market Committee meeting, due later today.
The Federal Reserve is expected to raise interest rates by 75 bps at the meeting.
Any overnight movement in crude oil prices and US Treasury yields may also lend early cues to domestic bonds.
The yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.29-7.39%.
India Gilts: Rise as OIS down, traders cover short bets before FOMC
NEW DELHI–1448 IST–Prices of government bonds rose as traders covered short bets before the outcome of the US Federal Open Market Committee’s meeting after market hours today, dealers said. A fall in the five-year overnight indexed swap rate to 6.38% also supported gilt prices.
A large corporate house was seen receiving the five-year OIS, possibly to hedge its fixed-rate liability on a bond issued on Tuesday, dealers said.
“It looks like someone is taking positions last minute before the FOMC,” a dealer at a private bank said. “The five-year OIS has also come down as a corporate is receiving fixed rates today, which has led to a rise in gilt prices.”
Gilts prices were steady for a large part of the trading session today, as traders kept to the sidelines due to caution before the outcome of the Federal Reserve’s meeting, dealers said.
According to the CME FedWatch tool, more than three-quarters of respondents expect a 75-basis-point increase at the outcome of the US Federal Reserve’s two-day policy review. The rest anticipate a 100-bps rate hike.
The US Fed rate decision and commentary are expected to lend cues to the Reserve Bank of India’s Monetary Policy Committee at its meeting next week.
For the rest of the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.32-7.37%. (Shubham Rana)
India Gilts:Steady before FOMC, T-bill rates up as liquidity narrows
NEW DELHI–1340 IST–Government bond prices remained steady amid dismal trade volumes as traders kept to the sidelines before the outcome of the US Federal Open Market Committee’s meeting, due after market hours today, dealers said.
The US Federal Reserve’s rate-setting panel is expected to raise rates by 75 basis points at the policy review meeting, with a quarter of market participants seeing a 100-bps hike, according to the CME FedWatch tool.
While the movement in gilt prices was limited, the cut-off prices at the Treasury-bill auction were set sharply higher than the cut-offs set at the auction on Jul 20, particularly in the 91-day T-bill, due to narrowing liquidity in the system.
The Reserve Bank of India set a cut-off of 98.6175 rupees or 5.62% yield, on the 91-day Treasury bill, 22 basis points higher than last week’s cut-off. The cut-off was seen at 98.6230 rupees, or 5.60% yield, according to 17 bond dealers polled by Informist.
The RBI set the cut-off on the 182-day T-bill at 97.1051 rupees or 5.98%, 13 bps higher than last week. The cut-off on the 364-day T-bill was at 94.0622 rupees or 6.33%, 9 bps higher than the previous auction.
“This rise in T-bill rates today was primarily because of the narrowing liquidity in the system,” a dealer at a private bank said. “The call money rate has been trading sharply higher than the repo rate and overnight rate have also jumped, so naturally 91-day T-bill rates will also go up.”
The inter-bank call money rate was sharply above the RBI’s repo rate of 4.90% today due to firm demand from banks to meet their funding requirements as liquidity narrowed further, dealers said.
At 1330 IST, the one-day call money rate was at 5.20% as against 4.40% on Tuesday.
Liquidity in the banking system is currently estimated to be in a surplus of over 498.77 bln rupees as against 737.41 bln rupees on Tuesday. The surplus liquidity is the lowest since September 2019.
The central bank announced a three-day variable rate repo auction for a notified amount of 500 bln rupees on Tuesday, following a surge in overnight borrowing rates in money markets.
Gilt prices may remain in a narrow range during the day today as a 75-bps rate hike by the Fed has already been priced into domestic gilts, dealers said.
During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.34-7.40%. (Shubham Rana)
India Gilts: Steady in dull trade ahead of US Fed meet outcome
NEW DELHI–0955 IST–Government bond prices were steady in dull trade due to caution ahead of the US Federal Open Market Committee’s rate decision after market hours today, dealers said.
The US Federal Reserve’s rate-setting panel is expected to raise rates by 75 basis points at the policy review meeting, with outlying bets for a 100-bps hike.
While the Fed’s policy meet may lend cues in the near term, due to the movement of US Treasury yields, traders eyed the impact of US rate hikes on domestic policy, dealers said.
The Monetary Policy Committee will meet next week and is expected to raise rates by 50 bps. If US Fed Chair Jerome Powell guides for sharp rate hikes ahead, domestic monetary policy tightening may also have to accelerate, dealers said.
“Everything looks to be steady today before the Federal Open Market Committee (outcome),” a dealer at a state-owned bank said. “The market is already in a comfortable range, everyone is just churning their portfolios.”
Price moves may be volatile due to diminished volumes, but traders are seen avoiding large bets as the 75-bps rate hike had already been priced in to domestic gilts, dealers said.
The yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.34-7.40%. (Aaryan Khanna)
India Gilts: Seen steady before Fed meet outcome; weak crude may aid
NEW DELHI – Government bond prices may open steady as traders are likely to stay cautious ahead of the outcome of the US Federal Open Market Committee’s meeting after market hours today, dealers said.
According to the CME FedWatch tool, more than three-quarters of respondents expect a 75-basis-point increase at the outcome of the US Federal Reserve’s two-day policy review. The remaining 24.9% anticipate a 100-bps rate hike.
The US rate decision and commentary are expected to lend cues to Reserve Bank of India’s Monetary Policy Committee at its meeting next week.
Recent comments from members of India’s rate-setting panel suggested inflation has peaked, while they flagged the negative impact on growth due to sharp monetary policy tightening.
However, a higher-than-expected rate hike in the US may push the Monetary Policy Committee to hike rates more than the anticipated 50 bps to arrest capital outflows and support the weakening rupee, dealers said.
Meanwhile, crude oil prices fell as US consumer confidence slumped to a 17-month low, and after the release of 20 mln barrels from the US’ Strategic Petroleum Reserve, bridging the gap amid tight supply elsewhere.
Brent crude for September delivery fell 0.7% on Tuesday to $104.40 a bbl, which may support demand for domestic gilts as imported inflationary pressures ease, dealers said.
The yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.34-7.40%, as against 7.37% on Tuesday. (Aaryan Khanna)
End
US$1 = 79.90 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Avishek Dutta
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