Informist, Tuesday, Jan 31, 2023
By Kasthuri Akhil and Nishat Anjum
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MUMBAI – Prices of government bonds ended higher today, with the 10-year benchmark 7.26%, 2032 gilt sharply rising as traders covered short bets ahead of the Union Budget presentation on Wednesday, dealers said.
The 10-year benchmark yield closed at its lowest level since Jan 19. The 10-year benchmark 7.26%, 2032 bond ended at 99.43 rupees, or 7.34% yield, as against 99.04 rupees, or 7.40% yield on Monday.
The 7.26%, 2032 bond, said to be the most short-sold paper right now, saw trades worth 107.79 bln rupees on ClearCorp’s Repo Order Matching System. The volume of interbank repo trades in a given paper is a proxy for tracking the quantum of short bets, as overnight short sellers have to necessarily borrow the securities.
An Informist poll showed the government may announce a record borrowing programme of 15.8 trln rupees on a gross basis. On a net basis, the government may peg its issuance of dated securities at 11.68 trln rupees in 2023-24, up 4% from the budgeted 11.19 trln rupees in the current financial year, according to the poll.
The market expects a gross borrowing number of around 16 trln rupees, which is likely to keep yield on the benchmark 10-year bond within 7.30-7.40%. However, if the gross borrowing number touches 16.50 trln rupees, the yield on the 7.26%, 2032 paper may shoot up to 7.45-7.50% levels, dealers said.
“With the news of the new 10-year paper, traders started covering their short bets as the supply (of the 7.26%, 2032 bond) will shrink now,” a dealer at a private bank said. “Over last few days, there was significant shorting in the benchmark 10-year paper, as traders would avoid going in to the Budget like that.”
Some traders covered short bets in the 7.26%, 2032 paper before the issuance of the new 10-year, 2033 bond at the auction on Friday, dealers said. The government will sell 120 bln rupees of the new 10-year paper on Friday. The new 2033 gilt was last quoted at 7.33-7.37%.
With the new bond issuance, dealers will no longer be able to cover their short bets in the 7.26%, 2032 bond at subsequent debt sales.
Better-than-expected demand for state bonds at the auction today also aided gilt prices near close, dealers said.
The Reserve Bank of India set the cutoff yield on the 25-year state bond at 7.65% against expectations of 7.70%, according to a poll by Informist.
The demand for the longer-term papers was robust particularly for papers with maturity above 15 years, where the major chunk of supply was absorbed by pension funds and insurance companies, dealers said. 13 states sold bonds worth 258.05 bln rupees in the auction today.
Besides the borrowing number, market participants do not expect any surprises in terms of new policies for gilts in the upcoming Union Budget, dealers said.
“Market has factored in all the negatives,” a dealer at a state-owned bank said. “I don’t see any special announcement this year for the gilts. The market will likely rally after Budget as all the negatives have been factored already.”
Moreover, the Economic Survey, tabled by the finance minister in Parliament today did not have any apparent impact on the gilts market, dealers said. According to the survey, the government is on track to meet the 2022-23 fiscal deficit target. The government pegged the fiscal deficit target at 6.4% of GDP for the current financial year ending Mar 31.
Traders also eyed the two-day US Federal Open Market Committee meeting, which starts later today, where the central bank is expected to raise rates by only 25 basis points, against the previous hike of 50 bps, dealers said.
According to the CME FedWatch tool, 99% of futures traders expect the panel to raise the Federal funds target range by 25 basis points. In over a year, the Fed has increased its federal funds rate by 425 bps from almost zero in seven rate hikes.
According to data on the RBI’s Negotiated Dealing System – Order Matching platform, the turnover today was 340.15 bln rupees, compared with 236.85 bln rupees on Monday.
Meanwhile, no trades were settled today with the digital rupee pilot.
OUTLOOK
On Wednesday, bond prices are seen steady as traders may stay on the sidelines before the Union Budget, dealers said.
Finance Minister Nirmala Sitharaman will present the Budget for 2023-24 at 1100 IST in Parliament.
Traders 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 7.25-7.45%.
India Gilts:Remain sharply up, traders cover short bets before Budget
MUMBAI–1325 IST–Prices of government bonds were higher today, with the 10-year benchmark 7.26%, 2032 gilt being the biggest gainer as traders covered their short bets ahead of the Union Budget presentation on Wednesday, dealers said.
The 7.26%, 2032 bond, said to be the most short-sold paper right now, saw trades worth 107.79 bln rupees on ClearCorp’s Repo Order Matching System. The volume of interbank repo trades in a given paper is a proxy for tracking the quantum of short bets, as overnight short sellers have to necessarily borrow the securities.
“People are covering after placing a lot of short bets in the 10-year paper yesterday (Monday),” a dealer at a private bank said. “They are mainly squaring off their positions before the budget.”
Dealers expect the Budget to announce gross market borrowing at around 15.75-16.20 trln rupees, which may keep the 10-year gilt yield anchored at 7.30-7.40%. If the gross borrowing target is around 16.50 trln rupees, the benchmark gilt yield may shoot up to 7.45-7.50%, dealers said.
“If the borrowing number comes below 16 trln rupees, there is a probability that gilts may see a bit of a rally,” a dealer at another private bank said.
A gross borrowing target around 15.50 trln rupees or lower could pull the 10-year gilt yield sharply lower to 7.15-7.25%, dealers said. Meanwhile, the market does not expect any new policies for gilts in the Budget.
An Informist poll showed the government may announce a record borrowing programme of 15.8 trln rupees on a gross basis. On a net basis, the government may peg its issuance of dated securities at 11.68 trln rupees in 2023-24, up 4% from the budgeted 11.19 trln rupees in the current financial year, the poll said.
However, traders aggressively covered their short bets on the 7.26%, 2032 paper, that will soon become an off-the-run security with the announcement of a new 10-year, 2033 bond after market hours on Monday, dealers said. The government will sell 120 bln rupees of the new 10-year paper on Friday. In when-issued trade, the new 2033 gilt was quoted at 7.31-7.40%.
On the one hand, traders expected the yield on the 10-year benchmark paper to touch levels near 7.50% if the government announces a borrowing number higher than 16 trln rupees. On the other hand, some traders covered their short bets ahead of the Budget as they proceeded with caution by squaring off their short bets into the day of the Budget, dealers said.
Moreover, traders await the result of the state government bond auction, where 13 states looked to raise 258.05 bln rupees. Traders expected the cut-off prices on the state bonds to be lower than the corresponding on-the-run gilts because of the large supply offered at the auction.
According to data on the Reserve Bank of India’s Negotiated Dealing System–Order Matching platform–market-wide turnover was 223.15 bln rupees at 1325 IST, compared with 115.20 bln rupees at 1330 IST on Monday.
For the rest of the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.33-7.39%. (Kasthuri Akhil)
India Gilts: Surge as traders cover short bets ahead of Budget Wed
NEW DELHI–1015 IST–Government bond prices rose sharply as traders covered their short bets due to caution ahead of the Union Budget on Wednesday, dealers said. The 10-year benchmark bond rose the most among on-the-run papers, as the government will issue a new 10-year 2033 bond on Friday.
“Traders are repositioning ahead of Budget,” a dealer at a primary dealership said. “Nobody would want to enter Budget with short positions.”
Moreover, traders have already factored in a larger borrowing number for 2023-24 (Apr-Mar), dealers said. Traders expect the government to eclipse the record it set for 2022-23 by announcing a borrowing programme of 15.8 trln rupees on a gross basis, according to a poll by Informist. On a net basis, the government may peg its issuance of dated securities at 11.68 trln rupees in 2023-24, up 4% from the budgeted 11.19 trln rupees in the current financial year.
“The borrowing number can go both ways, higher than 16 trln or lower than 16 trln, and in both cases, market will react sharply,” a dealer at a private bank said. “So, people really don’t want to have short positions heading into the Budget.”
Traders are also keeping a watch on the state loan auction today due to a large supply of state government bonds, dealers said. A total of 13 states will sell bonds worth 258.05 bln rupees. However, the amount offered to be raised by states was less than the amount mentioned in the state loan calendar.
Traders also eyed the US Federal Open Market Committee’s two-day meeting starting today. A total of 99.1% of futures traders expect the panel to raise the federal funds target range by 25 basis points, according to the CME FedWatch tool. In over a year, the Fed has increased its federal fund rate from near zero by 425 bps over seven rate hikes.
According to data on the Reserve Bank of India’s Negotiated Dealing System–Order Matching platform–the marketwide turnover was 66.80 bln rupees at 0955 IST, compared with 3.70 bln rupees at 0935 IST on Friday.
During the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.32-7.40%. (Anjali)
India Gilts: Seen steady on caution ahead of Union Budget, FOMC Wed
MUMBAI – Government bond prices are seen opening steady today as traders may refrain from placing large bets amid caution ahead of the Union Budget, due to be presented on Wednesday, dealers said.
Today, yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.36-7.44% as against 7.40% on Monday.
Traders may place fresh short bets with the government expected to announce a gross market borrowing programme of 15.8 trln rupees for 2023-24 (Apr-Mar), according to an Informist poll. This number would eclipse the record for the biggest market borrowing number set in this financial year of 14.21 trln rupees.
Traders may also stay on the sidelines ahead of the two-day US Federal Open Market Committee meeting, which starts today, where the US central bank is expected to raise rates by only 25 basis points, against the previous hike of 50 bps, dealers said.
According to the CME FedWatch tool, 98.6% of futures traders expect the panel to raise the Federal funds target range by 25 basis points. In over a year, the Fed has increased its federal funds rate by 425 bps from almost zero in seven rate hikes.
Traders may also exercise caution ahead of the auction of state government securities, the last auction before the Union Budget, due from 1030 IST to 1130 IST, dealers said. Today, 13 states will look to raise 258.05 bln rupees through the sale of bonds at the auction. (Kasthuri Akhil)
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Aditya Sakorkar
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