Informist, Thursday, Dec 15, 2022
By Nishat Anjum
MUMBAI – Government bond prices slumped after the US Federal Reserve said it would keep hiking rates in 2023, even as the Federal Open Market Committee’s decision early Thursday was on expected lines, dealers said.
The 10-year benchmark 7.26%, 2032 bond ended at 99.93 rupees, or 7.27% yield, as against 100.25 rupees or 7.22% yield on Wednesday.
According to the median of projections by US Fed officials, the policy rate is seen at 5.00-5.25% at the end of 2023.
Moreover, comments from Fed Chair Jerome Powell suggested that the central bank would keep monetary policy tight.
“Our focus right now is really on moving our policy stance to one that is restrictive enough to ensure a return of inflation to our 2% goals over time, it’s not on rate cuts,” Powell said at the news conference following the Fed’s policy-setting meeting.
While traders were cautious about the remarks earlier, the impact was limited as the FOMC slowed its pace of rate hikes to deliver a 50-basis-point rate increase. Consequently, the Fed funds rate rose to 4.25-4.50%, its highest level since early 2008.
However, offshore traders paid fixed rates in overnight indexed swaps later in the day, which pushed gilt prices lower, dealers said.
The one-year swap rate was at 6.64% from 6.60% on Wednesday, while the five-year swap rate was up 5 basis points at 6.27%, at the time the gilts market closed. OIS rates are traded till 1700 IST.
With the Fed ruling out rate cuts, the Monetary Policy Committee would also restrain from cutting rates before the Fed, dealers said.
“The downward movement was anticipated even though the market took some time to react to the hawkish commentary after the US policy,” a dealer at a state-owned bank said. “Tomorrow’s (Friday’s) auction also added to the fall, but we expected 7.25% yield (on the 10-year benchmark) bond to sustain.”
The market took some time to digest the slew of data it received this week. CPI inflation prints for the US and India for November were lower than expected, which had led to some participants stepping up purchases earlier this week, dealers said.
Traders made space for the fresh supply of gilts at the upcoming 300-bln-rupee weekly gilt auction, dealers said.
The government has offered to sell 40 bln rupees of the 6.69%, 2024 bond; 60 bln rupees of the 7.10%, 2029 bond; 110 bln rupees of a new 2036 bond; and 90 bln rupees of the 7.40%, 2062 bond on Friday.
Dealers were wary of stocking up on gilts ahead of the debt sale despite the fall in prices. Demand was dull for the 10-year and 14-year papers at the recent auctions on Dec 9 and Dec 2, respectively, which had led to lower-than-expected cut-off prices, dealers said.
Investors are unlikely to bid aggressively at the issuance of the new 2036 paper, which may put the new bond’s coupon higher than the prevailing yield on the 7.54%, 2036 bond, dealers said. The new bond was quoted at 7.33-7.39% in ‘when-issued’ trade today.
“Even though investors’ demand has been missing from the last two auctions, at tomorrow’s (Friday) auction we see their demand for short-term paper,” a dealer at a different state-owned bank said. “The new 14-year paper may go at the market level, if not then 1-bp lower.”
The rise in crude oil prices further weighed on gilts, dealers said. Brent crude for February delivery was up nearly 3% at $82.70 per barrel on Wednesday after the outlook for oil demand in 2023 was seen robust.
Losses in short-term bonds were limited as investors were more certain on the near-term rate view, with interest rates set to peak, rather than over an extended timeframe, dealers said.
Trade volumes were thin for most of the day near the year-end as foreign banks kept to the sidelines, while some dealing rooms had thinned out for holidays, dealers said.
According to data on RBI’s Negotiated Dealing System – Order Matching platform, the turnover was 250.40 bln rupees today, compared with 448.85 bln rupees on Wednesday.
Meanwhile, trades aggregating 150 mln rupees were settled with the digital rupee pilot in two deals, compared with 1.60 bln rupees in 19 deals on Wednesday.
OUTLOOK
On Friday, government bond prices are seen steady as traders stay on the sidelines before the 300-bln-rupees auction, dealers said.
Any significant movement in US Treasury yields and crude oil prices may also lend cues at open.
The yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.23-7.31%.
India Gilts: Slump more as OIS jumps on aggressive Fed rate view
MUMBAI–1500 IST–Government bond prices slumped further as overseas traders paid fixed rates in overnight indexed swaps after the US Federal Reserve suggested it would keep hiking rates in 2023, dealers said.
The one-year swap rate rose to the day’s high of 6.65% from 6.60% on Wednesday, while the five-year OIS rate was up 6 basis points at 6.27%.
Fed Chair Jerome Powell indicated that the Fed would continue with aggressive monetary policy tightening until it was near its 2% target on retail inflation.
A slump in the rupee also pushed gilt prices lower as traders fear marginal pressure on imported inflation, dealers said. The Indian unit was at the day’s low of 82.76 per dollar, against Wednesday’s close of 82.46 a dollar.
“Traders were very heavy after the CPI prints were positive, and investors don’t want to build a book near 7.20% yield (on the 10-year benchmark bond),” a dealer at a foreign bank said. “The negatives are also piling up – the Federal Open Market Committee was on the hawkish side, and the rupee has been hit.”
Data released earlier this week showed India’s CPI inflation fell to an 11-month low of 5.88% in November, while US CPI inflation also eased to 7.1% against expectations of a 7.3% print in November.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform, market-wide turnover was 215.50 bln rupees at 1455 IST compared with 338.35 bln rupees at 1330 IST on Wednesday.
During the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.24-7.29%. (Nishat Anjum)
India Gilts: Sharply down as traders make space for debt sale Fri
MUMBAI–1340 IST–Prices of government bonds fell sharply as traders made space on their books ahead of a 300-bln-rupee weekly auction on Friday, dealers said.
“Traders are making space for the new 2036 bond to be auctioned tomorrow,” a dealer at a private bank said.
The government has offered to sell 40 bln rupees of the 6.69%, 2024 bond; 60 bln rupees of the 7.10%, 2029 bond; 110 bln rupees of a new 2036 bond; and 90 bln rupees of the 7.40%, 2062 bond on Friday.
Traders placed short bets in the most-traded 7.26%, 2032 and 7.54%, 2036 bonds, but may cover these bets if the 10-year benchmark yield tops the key 7.25% level, dealers said.
A rise in crude prices on Wednesday also weighed on gilts, dealers said. Brent crude for February delivery rose nearly 3% to $82.70 per barrel on Wednesday after the Organization of the Petroleum Exporting Countries’ outlook for oil demand in 2023 was seen as robust.
Gilt prices fell as traders digested the decision of the US Federal Open Market Committee and comments by Federal Reserve Chair Jerome Powell overnight, dealers said. Powell indicated that the Fed would continue with aggressive monetary policy tightening until it was near its 2% target on retail inflation.
“Traders have factored in the important events of the week. Now, the cut-offs at tomorrow’s auction will decide the levels of the gilts,” a dealer at a primary dealership said.
Volumes remained low due to lack of significant domestic triggers, with the FOMC rate hike of 50 basis points along expected lines, dealers said. According to data on the RBI’s Negotiated Dealing System–Order Matching platform, market-wide turnover at 1340 IST was 155.35 bln rupees compared with 157.00 bln rupees at 1330 IST on Wednesday.
During the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.20-7.27%. (Anjali)
India Gilts: Down as US Fed sees 75 bps rate hikes 2023, crude surges
MUMBAI–1010 IST–The prices of government bonds fell after US Federal Reserve officials said they see another 75 basis points of rate hikes in 2023, dealers said. The rise in crude oil prices on Wednesday also weighed on gilts.
The Federal Open Market Committee’s decision to increase policy rates by 50 basis points was on expected lines, after four straight 75-bps hikes. However, according to the median of projections by US Fed officials, the policy rate is seen at 5.00-5.25% at the end of 2023.
Comments from US Chair Jerome Powell also suggested that the Fed would continue with aggressive monetary policy tightening until it was near its 2% target on retail inflation, dealers said.
The Fed’s focus is not on rate cuts but on reaching a policy stance that restricts inflation down to the 2% target, Powell said at the post-policy press conference.
“The comments by Fed indicate the rate hike cycle is not going to end anytime soon, which is unexpected as the US CPI was also good,” a dealer at a private bank said.
Several dealers expected the Reserve Bank of India to pause repo rate hikes after one more increase of 25-bps in February, while cutting rates later in the year.
With a pivot to rate cuts in the US unlikely after Powell’s comments, the Monetary Policy Committee may also not have room to cut rates to maintain an interest rate differential between the US and India, dealers said.
Moreover, Brent crude for February delivery was up nearly 3% at $82.70 per barrel on Wednesday after the outlook for oil demand in 2023 was seen robust. The rise in crude prices may lead to higher imported inflationary pressures in India, leading to a fall in gilt prices, dealers said.
Volumes were muted as traders stayed on the sidelines ahead of the 300-bln-rupee weekly gilt auction of Friday. The government has offered to sell 40 bln rupees of the 6.69%, 2024 bond; 60 bln rupees of the 7.10%, 2029 bond; 110 bln rupees of a new 2036 bond; and 90 bln rupees of the 7.40%, 2062 bond on Friday.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform, market-wide turnover was 54.15 bln rupees compared with 78.65 bln rupees at 0955 IST on Wednesday.
During the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.19-7.26%. (Anjali)
India Gilts:Seen steady as US hike on expected line; mkt eyes auction
MUMBAI – Prices of government bonds are seen steady today as the US Federal Reserve’s rate action was on expected lines and the focus will now shift to the government bond auction on Friday, dealers said.
Today, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.19-7.26% as against 7.22% on Wednesday.
The Federal Open Market Committee finally slowed the pace of its rate increases, opting for a 50-basis-point hike to put the Fed funds rate in a target range of 4.25-4.50%. The move comes after four straight rate hikes of 75 bps each.
Gilt prices are expected to see a limited impact of the Fed’s stance on further rate hikes, though a little caution is expected after comments by Chair Jerome Powell, dealers said.
“Our focus right now is really on moving our policy stance to one that is restrictive enough to ensure a return of inflation to our 2% goals over time, it’s not on rate cuts,” Powell said at the news conference following the Fed’s policy-setting meeting.
According to the median of projections by US Fed officials, the policy rate is seen at 5.00-5.25% at the end of 2023, indicating a net rate increase of another 75 bps.
The Reserve Bank of India is seen cutting rates only after the Fed pivots into lowering its policy rates. With high rates seen persisting, short-term bonds may fall, dealers said.
Traders may remain on the sidelines on caution ahead of the 300-bln-rupee gilt auction on Friday. Some traders may also place short bets ahead of the debt sale, dealers said. The government has offered to sell 40 bln rupees of the 6.69%, 2024 bond; 60 bln rupees of the 7.10%, 2029 bond; 110 bln rupees of a new 2036 bond; and 90 bln rupees of the 7.40%, 2062 bond.
A rise in crude oil prices may weigh on gilt prices, dealers said. Brent crude for February delivery was up nearly 3% at $82.70 per barrel on Wednesday after the outlook for oil demand in 2023 was seen robust. (Nishat Anjum)
End
US$1 = 82.76 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Maheswaran Parameswaran
For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.
Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.
Informist Media Tel +91 (22) 6985-4000
Send comments to [email protected]
© Informist Media Pvt. Ltd. 2022. All rights reserved.
Source: Cogencis
