Informist, Friday, Jan 13, 2023
By Kasthuri Akhil and Nishat Anjum
MUMBAI – Government bond prices ended on a mixed note today, with long-term bonds closing lower as traders turned their attention to the next big event for the bond market – the Union Budget for 2023-24 (Apr-Mar). Traders trimmed their holdings of longer-dated securities due to expectations of a higher borrowing number in the Budget for the next financial year, dealers said.
Meanwhile, short-term papers ended a tad higher as traders see the Reserve Bank of India’s rate hike cycle drawing closer to its end after headline inflation in December came in at 5.72%. The print remained below the upper limit of the RBI’s comfort band of 2-6% for the second straight month, increasing expectations that the central bank will pause raising rates after a 25-basis-point hike in February, dealers said.
Today, the 10-year benchmark 7.26%, 2032 bond ended at 99.72 rupees, or 7.30% yield, against 99.81 rupees, or 7.29% yield on Thursday.
“People want to go light into the Budget as they are expecting a higher borrowing number this year,” a dealer at a state-owned bank said. “There are no other events till Budget, you will see traders selling at the current levels.”
Gilt prices opened higher today, driven by positive sentiment from benign CPI inflation prints for both India and the US.
India’s inflation print for December came in at 5.72% – benefitting from moderation in food prices – as against the expectation of 5.9%, according to a poll by Informist. However, domestic core inflation continued to be sticky at 6.1% in December, weighing on gilts, dealers said.
In the US, headline inflation increased to 6.5% in December, the smallest rise since October 2021, increasing hope of lower rate hikes by the Federal Reserve. According to data from the CME Group’s Fedwatch tool, close to 93% of Fed funds traders expect a 25-bps rate hike at the two-day meeting starting on Jan 31, against 77% before the release of the inflation data.
However, bonds soon gave up gains as traders made space for the fresh 300-bln-rupee supply, dealers said. The government sold 40 bln rupees of a new 2025 bond; 60 bln rupees of the 7.10%, 2029 bond; 110 bln rupees of the 7.41%, 2036 bond; and 90 bln rupees of the 7.40%, 2062 bond. The Reserve Bank of India set a coupon of 6.89% on the new 2025 bond.
For longer-term bonds, domestic core inflation still being sticky outweighed the positive sentiment in early trade, as it did not lead to a change in the market’s rate hike view for February, dealers said. The cut-offs at the 300-bln-rupee auction also failed to lend any positive cues, as they were along expected lines, dealers said.
“Core inflation is still above 6%. Food inflation aided the CPI print come down this time, but the market expects food prices to rise again in January,” a dealer at a private bank said. “Now, the market has started to price in the possibility of higher food prices as well.”
At the last meeting of India’s rate-setting panel, committee members, including RBI Governor Shaktikanta Das, highlighted the still high core inflation print. Therefore, the rate-setting panel is still widely expected to raise the repo rate by another 25 basis points at its next meeting, dealers said. Since May, the policy rate has been cumulatively increased by 225 bps to 6.25% in December.
Meanwhile, the rise in prices of the 7.38%, 2027 bond and the 7.10%, 2029 bond was supported by comments by US Federal Reserve officials, which substantiated traders’ view of softening of the Fed’s rate hike cycle, dealers said. Philadelphia Fed President Patrick Harker said rate hikes of a quarter-percentage point “will be appropriate going forward”, after the release of the US consumer inflation data for December.
According to data on the RBI’s Negotiated Dealing System – Order Matching platform, the turnover today was 397.85 bln rupees, compared with 325.15 bln rupees on Thursday.
Meanwhile, trades aggregating 250 mln rupees were settled with the digital rupee pilot in five deals, compared to no trades on Thursday.
OUTLOOK
Gilts are not traded on Saturdays. On Monday, bond prices are seen opening steady due to lack of significant domestic cues, dealers said.
They may take cues from overnight movement in US Treasury yields and crude oil prices.
The yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.26-7.34%.
India Gilts: Erase gains in line with weekly auction cut-off prices
MUMBAI–1425 IST–Government bonds erased gains as cut-off prices at the auction were along expected lines, failing to lend any positive cues, dealers said. Traders trimmed their bond holdings to absorb fresh supply after the 300-bln-rupee auction, dealers said.
The government had offered to sell 40 bln rupees of the new 2025 bond; 60 bln rupees of the 7.10%, 2029 bond; 110 bln rupees of the 7.41%, 2036 bond; and 90 bln rupees of the 7.40%, 2062 bond, at the auction. The Reserve Bank of India set a coupon of 6.89% on the new 2025 bond.
“Auction was largely on expected lines, just a little tail in two papers, but that’s not a worry,” a dealer at a private bank said. “Now traders are selling to make space for the supply, as they generally do after every Friday auction.”
Despite trimming their gilt portfolios in the run-up to the auction, state-owned banks avoided stepping up purchases in the secondary market or bidding aggressively at the auction, dealers said.
“We continue to see these as selling levels and not a place to buy,” a dealer at a state-owned bank said. “The 10-year yield is unlikely to sustain under 7.30% before Budget, especially since the view for February (monetary policy review) is still a 25-basis-point hike.”
Traders did not stock up as a lower-than-expected headline CPI inflation print for December did not change the view on the Monetary Policy Committee hiking the repo rate by 25 bps at its upcoming February meeting, dealers said.
High core inflation in India, which inched up to 6.1% in December from 6.0% the previous month, led to some concern, as it suggested that the domestic rate-setting panel would opt for one more rate hike before pausing due to the negative impact on economic growth, dealers said.
According to data on the RBI’s Negotiated Dealing System, Order Matching platform, the market-wide turnover was 323.40 bln rupees at 1425 IST, compared with 248.25 bln rupees at 1430 IST on Thursday.
For the rest of the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.25-7.32%. (Kasthuri Akhil)
India Gilts: Rise on benign domestic, US CPI; debt sale in focus
MUMBAI–0935 IST–Government bond prices rose due to a better-than-expected domestic inflation data and a benign US December inflation print, dealers said. The gains were limited as India’s core inflation inched up to 6.1% in December from 6.0% in November, keeping traders cautious.
“The domestic CPI data was slightly better, but core inflation has remained sticky,” a dealer at a primary dealership said. “Once the market factors the CPI, there is not much to look at, market will remain at the current level.”
India’s December inflation print came in at 5.72%–benefitting from the moderation in food prices–as against the expectation of 5.9%, according to an Informist poll. US inflation print came in at 6.5%, which was along the expected lines.
A few traders made space for the fresh 300-bln-rupee supply at weekly auction today which capped gains, dealers said. The government will sell 40 bln rupees of a new 2025 bond; 60 bln rupees of the 7.10%, 2029 bond; 110 bln rupees of the 7.41%, 2036 bond; and 90 bln rupees of the 7.40%, 2062 bond. Traders expect firm demand at the auction.
According to data on the RBI’s Negotiated Dealing System, Order Matching platform, the market-wide turnover was 68.30 bln rupees at 0930 IST, compared with 70.35 bln rupees at 1030 IST on Thursday.
Today, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.24-7.32%. (Anjali)
India Gilts: Seen up after better-than-expected US, India CPI data
MUMBAI – Prices of government bonds are seen opening higher today due to better-than-expected inflation data from the US and India, dealers said. The fall in US Treasury yields on Thursday may also push gilt prices higher. Today, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.24-7.32%, as against 7.29% on Thursday.
India’s December inflation print came in at 5.72%–benefitting from the moderation in food prices–as against the expectation of 5.9%, according to an Informist poll.
Meanwhile, the yield on the benchmark 10-year US Treasury note fell 9 basis points to 3.43% on Thursday, the lowest in four weeks, as US headline inflation slowed for the sixth consecutive month to 6.5% in December. This was the smallest rise since October 2021. A fall in US Treasury yields widens the interest rate differential between the safe-haven asset and emerging market debt, making the latter more appealing to foreign investors.
The slowdown in inflation in the world’s largest economy may prompt the US Federal Reserve to further moderate the pace of its policy rate hikes. According to data from the CME Group’s Fedwatch tool, close to 95% of Fed funds traders–as against 77% before the release of the inflation data–expect a 25-bps rate hike at the two-day meeting starting on Jan 31.
Meanwhile, India’s policy rate is widely expected to be raised by 25 bps in February. The inflation number of 5.72% was within the Reserve Bank of India’s tolerance limit for the second month, which would give some leeway to the rate-setting committee to think about the possibility of slowing down further, dealers said. However, domestic core inflation continued to be sticky at 6.1% in December, and this could limit the gains in gilts today.
The gains may also be limited as traders may make space for the fresh 300-bln-rupee supply, dealers said. The government has offered to sell 40 bln rupees of a new 2025 bond; 60 bln rupees of the 7.10%, 2029 bond; 110 bln rupees of the 7.41%, 2036 bond; and 90 bln rupees of the 7.40%, 2062 bond. (Nishat Anjum)
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Avishek Dutta
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