Informist, Friday, Sep 30, 2022
By Shubham Rana
NEW DELHI – On a day when the Reserve Bank of India’s Monetary Policy Committee raised the repo rate along expected lines, government bond prices still ended sharply lower because the central bank set high cut-off yields at the weekly auction, dealers said.
The RBI set 7.39% cutoff yield at the 7.26%, 2032 gilt auction, against expectations of 7.36% in an Informist poll. The cutoff yield for the 6.69%, 2024 gilt was set at 7.10%, against expectations of 7.01%.
The government raised 40 bln rupees of the 6.69%, 2024 bond, 70 bln rupees of the 7.10%, 2029 bond, 130 bln rupees of the 7.26%, 2032 bond, and 90 bln rupees of the 7.40%, 2062 bond.
Today, the 10-year benchmark 7.26%, 2032 bond closed at 99.03 rupees, or 7.40% yield, as against 99.43 rupees, or 7.34% yield, on Wednesday. The most traded 6.54%, 2032 bond settled at 94.06 rupees, or 7.43% yield, against 94.38 rupees, or 7.38%, the previous day.
Traders were left with little appetite for the fresh supply as they had already covered their short bets after the repo rate was hiked by 50 basis points, dealers said. According to an Informist poll, the rate-setting panel was seen raising the policy repo rate by 50 basis points.
Apart from the rate hike, the central bank was restricted in its commentary on the path of the future rate decisions. In fact, some gilt dealers termed the policy outcome as a “non-event” as it was well in line with expectations.
The lack of monetary policy tightening measures, other than the rate hike, led traders to cover their short bets, especially in the short-term papers, dealers said. The 7.38%, 2027 bond fell just 3 paise when the 10-year 7.26%, 2032 gilt fell 40 paise.
Traders also stepped up purchases in gilts maturing under five years after the rate decision, dealers said. The yield on the five-year securities were running at par with those on the 10-year benchmark gilt heading into the policy outcome.
“Lack of forward guidance by the Reserve Bank of India appeared to be logical in light of the reasons the RBI governor gave,” V. Lakshmanan, head of treasury, Federal Bank, said. “There are too many unknowns that are playing out so giving and then taking back forward guidance would not make sense.”
Gilts opened lower today as traders kept to the sidelines on caution before the outcome of the Monetary Policy Committee meeting.
“There was nothing to be done before the auction, trade was also quite range-bound and flattish since everything in the governor’s comments was priced in, and all the negative factors he spoke of initially turned out to have no bearing on growth and inflation projections,” a dealer at state-owned bank.
Moreover, FTSE Russell said India’s sovereign bonds would not be included in the bond index for emerging market economies in the current round, and will remain on the watchlist for inclusion, which dented market sentiment, dealers said.
Market still awaits the result of JPMorgan’s September review, which had reportedly consulted investors earlier this year on adding Indian gilts to its emerging markets bond index, dealers said.
There were so many factors at play today that the borrowing plan for Oct-Mar was not a significant consideration today, dealers said.
On Thursday, the central government cut its gross borrowing target for 2022-23 (Apr-Mar) by 100 bln rupees to 14.21 trln rupees. The government said it would borrow 5.92 trln rupees through the sale of dated securities in Oct-Mar, according to its calendar for the period.
According to data on Reserve Bank of India’s Negotiated Dealing System – Order Matching platform, the market-wide turnover stood at 462.90 bln rupees, compared with 305.35 bln rupees on Thursday.
OUTLOOK
Gilts are not traded on Saturdays.
On Monday, government bond prices may open steady after a slew of mixed domestic cues, dealers said.
While, the Centre cut its gross borrowing target for 2022-23 (Apr-Mar) by 100 bln rupees to 14.21 trln rupees, the Reserve Bank of India raise the repo rate by 50 bps.
Traders may step up gilt purchases at levels considered lucrative with no triggers seen in the next week that would weigh on gilt prices.
The high cutoff yields set at the auction today may also weigh on the bonds on Monday.
Any movement in US Treasury yields and crude oil prices may also lend cues at open.
Yield on the most traded 6.54%, 2032 bond is seen at 7.38-7.48%, and that on the 10-year benchmark 7.26%, 2032 bond at 7.35-7.45%.
India Gilts: Fall as high cutoff ylds set at auction on poor demand
NEW DELHI–1610 IST–Prices of government bonds fell sharply after the Reserve Bank of India set high cut-off yields due to poor demand at the weekly auction, dealers said.
Traders covered short bets after the announcement of rate hike decision and were left with little appetite for gilts at the auction.
The RBI set 7.39% cutoff yield at the 7.26%, 2032 gilt auction, against expectations of 7.36% in an Informist poll. The cutoff yield for the 6.69%, 2024 gilt was set at 7.10%, against expectations of 7.01%.
The government raised 40 bln rupees of the 6.69%, 2024 bond, 70 bln rupees of the 7.10%, 2029 bond, 130 bln rupees of the 7.26%, 2032 bond, and 90 bln rupees of the 7.40%, 2062 bond.
“Looks like everyone who had to cover went all in after the rate announcement, the 10-year yield was down to 7.30%, so nobody was left to cover at the auction,” a dealer at a state-owned bank said. “Investors have picked up stock quite comfortably after bidding high (in terms of yields).”
The RBI’s Monetary Policy Committee hiked the repo rate by 50 basis points, in line with expectations, following which short-sellers covered their bets.
During the day, the yield on the most-traded 6.54%, 2032 bond is seen at 7.35-7.47%. The yield on the new 10-year 7.26%, 2032 bond is seen at 7.34-7.42%. (Shubham Rana)
India Gilts: On a mixed note after MPC decision; 5-year bonds up
NEW DELHI–1520 IST–Government bond prices traded on a mixed note after the result of the Monetary Policy Committee meeting earlier. Traders stepped up purchases in gilts maturing under five years after the rate decision was on expected lines, dealers said.
“The levels on the five-year gilt have been consistently good over the past week, this is a good time to allow some steepening in the curve since the governor didn’t seem overly pessimistic about the inflation view,” a dealer at a state-owned bank said.
The yield on the five-year securities were running at par with those on the 10-year benchmark gilt heading into the policy outcome.
The lack of further monetary policy tightening measures other than the rate hike, which was on expected lines, led traders to cover their short bets in the paper, dealers said. The 7.38%, 2027 bond was up 16 paise to 100.42 rupees or 7.27% yield.
Most other gilts were trading little changed from their closing prices on Thursday.
Trade was volatile but within a narrow band as dealers awaited the result of the 330-bln-rupee weekly gilt auction.
The government has offered to sell 40 bln rupees of the 6.69%, 2024 bond, 70 bln rupees of the 7.10%, 2029 bond, 130 bln rupees of the 7.26%, 2032 bond, and 90 bln rupees of the 7.40%, 2062 bond.
During the day, the yield on the most-traded 6.54%, 2032 bond is seen at 7.30-7.46%. The yield on the 10-year 7.26%, 2032 bond is seen at 7.26-7.42%. (Aaryan Khanna)
India Gilts: Rise as MPC hikes rates by 50 bps, on expected lines
NEW DELHI–1107 IST–Prices of government bonds rose as short-sellers covered their bets after the Reserve Bank of India’s Monetary Policy Committee hiked the repo rate by 50 basis points, which was in line with expectations.
“This policy is a non-event for the market since everything was on expected lines,” a dealer at a primary dealership said. “The market has gone up, but the rise in prices will not sustain.”
With the fourth rate hike in as many policy reviews, the repo rate now stands at 5.90%.
“The MPC is of the view that further calibrated monetary policy action is warranted to keep inflation expectations anchored, restrain the broadening of price pressures and pre-empt second round effects,” Governor Shaktikanta Das said while announcing the policy.
The rate-setting panel decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth, Das said. Jayanth Varma voted against this part of the resolution.
The committee has slashed its forecast for 2022-23 GDP growth by 20 bps to 7.0% from 7.2% project in August.
During the day, the yield on the most-traded 6.54%, 2032 bond is seen at 7.30-7.46%. The yield on the new
10-year 7.26%, 2032 bond is seen at 7.26-7.42%. (Shubham Rana)
India Gilts: Fall on caution ahead of MPC outcome, 50-bps hike seen
NEW DELHI–0925 IST–Government bond prices fell in early trade amid tepid volumes as traders kept to the sidelines due to caution ahead of the outcome of the Monetary Policy Committee meeting at 1000 IST, dealers said.
The panel is expected to raise the repo rate by 50 basis points, with little change expected to the Reserve Bank of India’s growth and inflation projections, according to an Informist poll earlier this week.
RBI Governor Shaktikanta Das will detail the policy outcome. Dealers were of the view that the commentary would focus on bringing down consumer inflation, after the headline figure topped the central bank’s medium-term target band of 2-6%, which dented market sentiment.
The lack of volumes highlighted the price movement, as traders avoided stepping up purchases before the expected rate hike, dealers said.
“I would consider this a flattish opening, there are no volumes which is standard before policy,” a dealer at a private bank said. “The borrowing calendar was more along expected lines, we’ll have to wait later in the year for final confirmation of borrowing.”
On Thursday, the central government cut its gross borrowing target for 2022-23 (Apr-Mar) by 100 bln rupees to 14.21 trln rupees, which was not a significant consideration ahead of the policy decision, dealers said.
During the day, the yield on the most-traded 6.54%, 2032 bond is seen at 7.30-7.46%. The yield on the new 10-year 7.26%, 2032 bond is seen at 7.26-7.42%. (Aaryan Khanna)
India Gilts: Seen up before MPC outcome as govt cuts FY23 borrow aim
NEW DELHI – Government bond prices are expected to rise slightly at open after the central government cut its gross borrowing target for 2022-23 (Apr-Mar) by 100 bln rupees to 14.21 trln rupees, dealers said.
On Thursday, the government said it would borrow 5.92 trln rupees through the sale of dated securities in Oct-Mar, according to its calendar for the period.
Today, the yield on the most-traded 6.54%, 2032 bond is seen at 7.30-7.46%, against 7.38% on Thursday. The yield on the 10-year 7.26%, 2032 bond is seen at 7.26-7.42% as against 7.34% previously.
Gains are seen capped as traders avoid large bets before the outcome of the Monetary Policy Committee meeting. The outcome will be detailed by Reserve Bank of India Governor Shaktikanta Das at 1000 IST.
The panel is expected to raise the repo rate by 50 basis points today, with little change expected on the RBI’s growth and inflation projections, according to an Informist poll.
Traders will keenly eye the central bank’s outlook as well as measures taken on banking system liquidity, which has slumped to a deficit this month, dealers said.
Meanwhile, FTSE Russell said India’s sovereign bonds would not be included in the bond index for emerging market economies in the current round, and will remain on the watchlist for inclusion.
The decision is unlikely to weigh on gilt prices as the market awaits the result of JPMorgan’s September review, which had reportedly consulted investors earlier this year on adding Indian gilts to its emerging markets bond index, dealers said. (Aaryan Khanna)
End
US$1 = 81.34 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Arshad Hussain
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