Informist, Tuesday, Mar 28, 2023
By Shubham Rana
NEW DELHI – Prices of government bonds ended lower today because of a rise in US Treasury yields, and as traders trimmed their holdings on caution ahead of the release of the Apr-Sep borrowing calendar, where the government is expected to raise 55-58% of the 15.43-trln-rupee target for 2023-24 (Apr-Mar), dealers said.
The government is likely to announce the borrowing calendar for Apr-Sep by Friday, a senior finance ministry official told Informist today.
“The borrowing calendar meeting is likely to take place tomorrow (Wednesday) in the second half. Since Thursday is a holiday for the Reserve Bank of India, the calendar may come by Friday,” the official said.
Losses were limited in the 14-year 7.41%, 2036 bond due to demand from investors who stocked up on longer dated securities near the end of the current financial year, dealers said.
“Insurance companies are buying the 14-year bond right now because you are basically getting the same yields in this segment compared to ultra-long bonds right now,” a dealer at a private bank said. “Insurance companies have seen large inflows into their schemes that end on Apr 1, so they have cash to invest right now.”
Insurance companies have been speculated to stock up on long-term bonds aggressively ever since the announcement of a tax change linked to some of their products in the Union Budget for 2023-24 (Apr-Mar). From Apr 1, income from life insurance policies, other than unit-linked insurance plans, with a premium or aggregate premium exceeding 500,000 rupees a year will become taxable.
Gilts opened lower today tracking US Treasury yields, which rose as concerns over the global banking crisis eased. Bonds remained under pressure throughout the day as US yields inched higher. The yield on the 10-year US Treasury note rose to 3.57% by the end of Indian market hours from 3.47% at the end of Indian market hours on Monday.
The record-high state government auction dented sentiment for gilts as insurers demanded higher returns at last auction of the current fiscal, which was also the largest ever state government bond auction.
“The SDL (state development loans) result was mixed with Gujarat getting a good result, but some others did not,” a dealer at another private bank said. “States should be dancing right now because of how much they have managed to raise over the last two weeks at relatively decent yields.”
Today, 16 states raised 412.14 bln rupees at the auction, against the notified amount of 427.14 bln rupees.
According to data on RBI’s Negotiated Dealing System-Order Matching platform, the turnover was 374.30 bln rupees, compared with 372.80 bln rupees on Monday. No trades were executed today with the digital rupee pilot against trades aggregating 100 mln rupees on Monday.
OUTLOOK
On Wednesday, bond prices are seen opening steady due to lack of significant domestic cues, dealers said. Traders may take cues from overnight movement in US Treasury yields and crude oil prices.
Traders may stay on the sidelines as they await the release of the Apr-Sep borrowing calendar, due to be announced this week.
The yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.28-7.36%.
India Gilts: Remain down tracking rise in US yields
MUMBAI–1545 IST–Prices of government bonds remained down as US Treasury yields rose further during the day. The higher-than-expected cut-off yields at the state bond auction did not have much impact on gilt prices, dealers said.
The yield on the benchmark 10-year US Treasury note rose to 3.53% on Monday from 3.47% at the end of Indian market hours. The yield was further up 5 basis points at the day’s high of 3.58% during the day. US yields rose as the acquisition of Silicon Valley Bank by First Citizens BancShares soothed fears about a contagion in the banking system.
“Demand from insurers and mutual funds must have been there in the longer-term papers, but given that the auction size was so large, investors must have sought higher yields,” a dealer at a private bank said.
Mutual funds, same as Monday, stepped up their purchases of the benchmark 2032 bond, which limited the fall in prices. Traders expected this buying momentum to continue until the new financial year kicks in on Apr 1, dealers said.
According to data on the Reserve Bank of India’s Negotiated Dealing System-Order Matching platform, the market-wide turnover was 301.30 bln rupees at 1545 IST, compared with 231.45 bln rupees at 1525 IST on Monday.
For the rest of the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.31-7.36%. (Kasthuri Akhil)
India Gilts: Remain dn as US ylds up, caution before borrow calendar
MUMBAI–1250 IST—-Prices of government bonds remained down tracking a rise in US Treasury yields. Moreover, traders trimmed their bond holdings on caution ahead of the release of the borrowing calendar for Apr-Sep, likely this week, dealers said.
“There was some selling after the state bond auction. Some might also be trimming their position before the new borrowing calendar is out,” a dealer at a state-owned bank said. “This is the last auction of this financial year, so mutual funds and insurance companies may like to buy now.”
Today, 16 states looked to raise 427.14 bln rupees through the sale of bonds at the auction held from 1030-1130 IST. The large size of the auction also led to the fall in prices. Traders awaited the result of the auction for cues regarding the market appetite for bonds of various tenures, dealers said.
Some dealers speculated that there was strong demand from insurance companies and mutual funds for the longer-term papers as they preferred stocking up on gilts at attractive yields before the new tax norms come into effect on Apr 1, dealers said.
Mutual funds stepped up their purchases of the benchmark 2032 bond as well, same as Monday, due to an increase in inflows in their debt schemes as investors will no longer benefit from long-term capital gains and indexation benefits after Apr 1, dealers said.
According to amendments to the Finance Bill, income from investments in mutual funds, where not more than 35% is invested in equity shares of domestic companies, will not get long-term capital gains and indexation benefits, and will be taxed at the individual’s tax rate for investments after Apr 1.
Meanwhile, the new tax norms for insurance policies that will come into play from Apr 1 also led to an increase of inflows into insurance schemes prior to the start of the new financial year. From Apr 1, income from life insurance policies, other than unit-linked insurance plans, with a premium or aggregate premium exceeding 500,000 rupees a year will become taxable.
Prices remained down as traders also avoided stocking up on gilts ahead of the announcement of the borrowing calendar for Apr-Sep, dealers said.
According to data on the Reserve Bank of India’s Negotiated Dealing System-Order Matching platform, the market-wide turnover was 120.50 bln rupees at 1250 IST, compared with 127.90 bln rupees at 1250 IST on Monday.
For the rest of the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.32-7.37%. (Kasthuri Akhil)
India Gilts: Fall as US yld up, caution before large state bond supply
MUMBAI–0950 IST–Prices of government bonds fell today tracking a rise in US Treasury yields. Moreover, traders avoided placing aggressive bets due to caution ahead of the large gilts supply in the new financial year starting Apr 1, dealers said.
“The state bond auction calendar got revised yesterday (Monday), along with a rise in US yields has caused some selling in the market,” a dealer at a private bank said. “Also, traders will mostly stay cautious ahead of the new borrowing calendar.”
The yield on the benchmark 10-year US Treasury note rose to 3.53% on Monday from 3.47% at the end of Indian market hours. A rise in US Treasury yields narrows the interest rate differential between the safe-haven asset and emerging market debt, making the latter less appealing to foreign investors. US Treasury yields rose as risk-off sentiment eased due to growing optimism that the crisis in the global banking sector would soon fade.
Traders expect the yield on the 10-year benchmark 7.26%, 2032 bond to stay above the psychologically-crucial level of 7.31% during the day, dealers said. Traders avoided stocking up on gilts ahead of the largest state bond supply at the auction today, dealers said.
The Reserve Bank of India, on Monday, revised the state bond auction size 20 bln rupees higher to 427.14 bln rupees. Today, 16 states will look to raise the amount at the auction scheduled for 1030-1130 IST.
Moreover, traders also maintained caution as they keenly awaited the announcement of the borrowing calendar for Apr-Sep, likely this week, dealers said. Informist had reported on Mar 14, quoting a senior finance ministry official, that the government might continue with the practice of front-loading its borrowing in the first half of the financial year, where it may opt to conduct 55-58% of gross bond issuances for 2023-24 in Apr-Sep.
Few also anticipated a slight increase in the bond issuance in Apr-Sep, nearly 60% of 15.43 trln rupees, which may increase selling pressure in the market and push prices further down, dealers said.
According to data on the Reserve Bank of India’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 24.35 bln rupees at 0950 IST, compared with 17.20 bln rupees at 0935 IST on Monday.
During the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.31-7.37%. (Kasthuri Akhil)
India Gilts: Seen down on rise in US yields, record state bond sale
NEW DELHI – Prices of government bonds may open lower as traders trim their holdings noting a rise in US Treasury yields on Monday, in the face of large upcoming domestic bond supply, dealers said.
Today, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.28-7.35% as against 7.30% on Monday.
The yield on the benchmark 10-year US Treasury note rose 13 basis points to 3.51% on Monday as risk-off sentiment abated due to optimism that the crisis in the global banking sector would ease, as First Citizens Bank agreed to acquire the deposits and loans of Silicon Valley Bank, which had collapsed on Mar 10.
Traders may avoid stocking up on gilts ahead of the largest state bond sale on record. The Reserve Bank of India will auction bonds worth 427.14 rupees from 16 states, revising the auction size higher by 20 bln rupees, it said after market hours on Monday. The auction is scheduled for 1030-1130 IST today.
Dealers had looked through the rise in US Treasury yields during market hours on Monday as swap rates failed to rise. Along with the offshore trigger, the domestic supply today may lead to bond prices sinking, dealers said.
The market is also cautious ahead of the announcement of the borrowing calendar for Apr-Sep, likely this week. The government is expected to raise 55-58% of its record 15.43-trln-rupee gross borrowing programme in the first half of 2023-24 (Apr-Mar), dealers said. A figure closer to 60%, as in previous years, would dent sentiment and push gilt prices down.
On the other hand, some traders may bet that the Monetary Policy Committee will pause rate hikes in April for the first time in 11 months, dealers said. Opinions are split between a pause and a 25-bps rate hike on Apr 6, but any easing in the rate view could limit losses, dealers said.
Investor inflows into insurance companies and debt mutual funds due to new tax norms coming into effect on Apr 1 may lead to bond buys from those segments in both the primary and secondary market today, dealers said. (Aaryan Khanna)
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Tanima Banerjee
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