Informist, Friday, Mar 31, 2023
By Kasthuri Akhil
MUMBAI – Government bond prices ended lower as traders sold their gilt holdings ahead of the fresh supply in the new financial year starting Saturday. Traders also trimmed their gilt holdings on caution ahead of the Monetary Policy Committee meeting next week, dealers said.
The 10-year benchmark 7.26%, 2032 bond ended at 99.60 rupees, or 7.32% yield, against Wednesday’s close of 99.79 rupees, or 7.29% yield. The 7.26%, 2033 bond ended at 99.63 rupees, or 7.31% yield, against 99.82 rupees, or 7.28% on Wednesday. Domestic financial markets were shut on Thursday on account of Ram Navami.
Uncertainty around rate view persisted as some traders bet on a 25-basis-point rate hike, while others bet on a pause, dealers said.
“As uncertainty around banking sector has reduced in the West, and then we have policy also next week, it was unlikely that bonds would pick up before that,” a dealer at a primary dealership said. “The market largely expects that the (rate hike) cycle is coming close to an end. You can see the shorter end looks better because of that.”
Prices of short-term bonds ended steady also because of relatively lesser quantum of Apr-Sep gilts supply in that segment as compared to the longer-term bond issuances, dealers said. Of the government borrowing in Apr-Sep, 11.7% will be through sales of the five-year gilt, and 10.2% of the gross issuance will be through the seven-year bond.
The government will conduct 20.5% of the Apr-Sep bond issuances through the sale of the 10-year paper, and 17.6% through the auction of 14-year and 40-year bonds, the government said in a release on Wednesday.
The central government will borrow 8.88 trln rupees through dated securities in Apr-Sep, accounting for 57.55% of the gross market borrowing target of 15.43 trln rupees in 2023-24 (Apr-Mar).
Moreover, traders paid fixed rates in the overnight indexed swap market, which also led domestic bond prices to fall towards the end of trade, dealers said. The five-year swap rate rose to the day’s high of 6.33% from 6.25% on Wednesday. The one-year swap rate touched 6.84% during the day, against 6.79% on Wednesday.
Earlier in the day, bonds were in a thin band as traders considered the borrowing calendar to be mostly along expectations. Even though, the borrowing calendar is slightly heavier than expectations of about 55% of the government’s gross borrowing target for the whole year in Apr-Sep, yet, the market was prepared for the Apr-Sep borrowing calendar to be somewhere between 55-60% of the gross target in the run-up to the release.
Despite a slight rise in the debt supply allocation for Apr-Sep, the fall in prices in early trade was limited due to buying support from mutual funds in the market, dealers said. “Ideally, the prices should have fallen in early trade but because of the demand from the mutual funds, it remained a bit up,” a dealer at a private bank said. “There was targeted buying in the shorter end by mutual funds, especially in 7.38%, 2027 paper.”
Mutual funds stepped up purchases before the end of the current financial year as their last recourse to help investors avail long-term capital gains and indexation benefits that will no longer be the case 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.
According to data on RBI’s Negotiated Dealing System-Order Matching platform, the turnover was 523.05 bln rupees, compared with 374.30 bln rupees on Wednesday. No trades were executed today with the digital rupee pilot.
OUTLOOK
Gilts are not traded on Saturdays.
On Monday, bond prices are seen opening steady as traders may stay on the sidelines ahead of the outcome of the Monetary Policy Committee meeting next week, dealers said.
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 7.28-7.37%.
India Gilts: Dn as OIS rate up, traders sell before fresh gilt supply
MUMBAI–1540 IST–Prices of long-term government bonds were sharply down tracking a rise in overnight indexed swap rates, dealers said. Moreover, traders sold their bond holdings ahead of the fresh gilt supply in the new financial year starting April, which pulled prices lower, dealers said.
“There is a little bit of sell off because of the new borrowing calendar next year (Apr-Sep), and liquidity is also being continuously drained out. So, there is overall bearishness in the market,” a dealer at a state-owned bank said. “Moreover, whenever there is sharp movement in OIS, G-sec starts to track it, and that is causing the fall in gilt prices.”
Some dealers speculated that foreign banks sold their gilt holdings and paid in the OIS market, expecting a 25-basis-point rate hike by the Monetary Policy Committee on Apr 6, with the stance remaining unchanged. The five-year swap rate rose to 6.32% during the day from 6.25% on Wednesday.
The market opinion remained divided regarding the possible rate action by the Monetary Policy Committee on Apr 6. Most expect the repo rate to peak at 6.75% after a final hike of 25 basis points in April. However, given the rising concerns over financial stability globally, some traders expected the Reserve Bank of India to opt for a pause in the April policy review, dealers said.
Moreover, since a greater chunk of gilt issuances in Apr-Sep is concentrated in the longer-term securities, this as a result weighed further on gilt prices, dealers said. The government will conduct 20.5% of the Apr-Sep bond issuances through the sale of the 10-year paper, and 17.6% through the auction of 14-year and 40-year bonds, the government said in a release on Wednesday.
The central government will borrow 8.88 trln rupees through dated securities in Apr-Sep, accounting for 57.55% of the gross market borrowing target of 15.43 trln rupees in 2023-24 (Apr-Mar).
According to data on the Reserve Bank of India’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 425.50 bln rupees at 1540 IST, compared with 249.50 bln rupees at 1525 IST on Wednesday.
For the rest of the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.27-7.36%. (Kasthuri Akhil)
India Gilts: Fall as traders sell at profit, caution before MPC meet
MUMBAI–1300 IST–Prices of government bonds fell as traders sold their bond holdings at a profit. Traders maintained caution ahead of the monetary policy decision next week, dealers said.
“People who bought in the morning, are now selling. There was no major reason for it to be up in early trade,” a dealer at a primary dealership said. “Now everyone is taking positions ahead of the (monetary) policy decision. I don’t really see much movement in the day.” Some dealers speculated that mutual funds stepped up their purchases in some segments in early trade due to caution ahead of the new tax norms coming into effect on Apr 1, dealers said.
The fall in prices of the short-term papers was restricted as bulk of the government’s gilt issuances in Apr-Sep was concentrated in bonds with tenures 10 years and above, dealers said.
On Wednesday, the government released the borrowing calendar for the first half of the new financial year starting April. The central government will borrow 8.88 trln rupees through dated securities in Apr-Sep, accounting for 57.55% of the gross market borrowing target of 15.43 trln rupees in 2023-24 (Apr-Mar).
Of the government borrowing in Apr-Sep, 11.7% will be through sales of the five-year gilt, and 10.2% of the gross issuance will be through the seven-year bond. The government will conduct 20.5% of the Apr-Sep bond issuances through the sale of the 10-year paper, and 17.6% through the auction of 14-year and 40-year bonds, the government said in a release on Wednesday.
Apart from the impact of the borrowing calendar, traders expected price movement to be majorly driven by banks’ closing their books at the end of the current financial year, during the day. Traders lack any significant domestic cues to place bets until the Monetary Policy Committee outlines its decision on Apr 6, dealers said.
The rate-setting panel is scheduled to meet on Apr 3, 5 and 6. Most expect the repo rate to peak at 6.75% after a final hike of 25 basis points next week. However, there still remains some uncertainty in the market about the rate hike as a few participants also expected a pause, dealers said.
According to data on the Reserve Bank of India’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 266.30 bln rupees at 1300 IST, compared with 111.70 bln rupees at 1300 IST on Wednesday.
For the rest of the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.27-7.37%. (Kasthuri Akhil)
India Gilts: Steady as traders avoid aggressive bets on fincl yr end
MUMBAI–0955 IST–Prices of government bonds were steady as traders refrained from placing aggressive bets on the last day of the current financial year ending March. Traders keenly await the outcome of the Reserve Bank of India’s Monetary Policy Committee meeting next week, dealers said.
“Today being 31st (Mar 31), there will be mostly portfolio reshuffling. You would not see much movement throughout the day,” a dealer at a private bank said. “The borrowing calendar (Apr-Sep) was also more or less as the market had expected, so that too won’t have much impact on prices.”
On Wednesday, the government released the borrowing calendar for the first half of the new financial year starting April. The central government will borrow 8.88 trln rupees through dated securities in Apr-Sep, accounting for 57.55% of the gross market borrowing target of 15.43 trln rupees in 2023-24 (Apr-Mar).
Even though, the borrowing calendar is slightly heavier than expectations of about 55% of the government’s gross borrowing target for the whole year in Apr-Sep, yet, the market was prepared for the Apr-Sep borrowing calendar to be somewhere between 55-60% of the gross target in the run-up to the release.
As is generally the case, the government will conduct a bulk of its borrowing through issuances of the 10-year bond. A total of 20.5% of the Apr-Sep bond issuances will be through sales of the 10-year paper, while 17.6% will be through auction of 14-year and 40-year bonds, the government said in a release.
As a result, the 10-year and 14-year benchmark bond prices were in a thin band, as against the shorter-term bond prices that were a tad higher, dealers said. Of the government borrowing in Apr-Sep, 11.7% will be through sales of the five-year gilt, while the seven-year bond will account for 10.2% of the gross issuance.
Prices are expected to move in a narrow range for the rest of the day. Traders may avoid placing aggressive bets as they close their books of account for the current financial year, dealers said.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 71.30 bln rupees at 0950 IST, compared with 23.00 bln rupees at 0945 IST on Wednesday.
During the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.24-7.35%. (Kasthuri Akhil)
India Gilts:Seen steady as H1 FY24 borrow calendar on expected lines
MUMBAI – Prices of government bonds are seen opening steady as the borrowing calendar for the Apr-Sep period of the new financial year starting April was on expected lines, dealers said.
Today, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.25-7.33% as against 7.29% on Wednesday. Money markets were shut on Thursday on account of Ram Navami.
On Wednesday, the government announced the borrowing calendar for the first half of the new financial year starting April. The central government will borrow 8.88 trln rupees through dated securities in Apr-Sep, accounting for 57.55% of the gross market borrowing target of 15.43 trln rupees in 2023-24 (Apr-Mar).
On Mar 14, Informist had exclusively reported that the government may opt to conduct 55-58% of gross bond issuances for 2023-24 in Apr-Sep. As is generally the case, the government will conduct a bulk of its borrowing through issuances of the 10-year bond. A total of 20.5% of the Apr-Sep bond issuances will be through sales of the 10-year paper, while 17.6% will be through auction of 14-year and 40-year bonds, the government said in a release on Wednesday.
The five-year benchmark bond may see a rise in price as 11.7% of the Apr-Sep government borrowing will be through the sale of the five-year gilt, lower than 14.1% in the first half of the current financial year ending March, dealers said.
Traders may avoid placing large bets as they await the Monetary Policy Committee’s decision on Thursday, dealers said. The rate-setting panel is scheduled to meet on Apr 3, 5 and 6. Most expect the repo rate to peak at 6.75% after a final hike of 25 basis points next week. However, there still remains some uncertainty in the market about the rate hike as few also expected a pause, dealers said. (Kasthuri Akhil)
End
Edited by Aditya Sakorkar
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