Informist, Wednesday, May 3, 2023
By Anjali
NEW DELHI – The yield on the 10-year benchmark government bond ended at the lowest level since Apr 7, 2022, as US Treasury yields slumped ahead of the outcome of the US Federal Open Market Committee’s meeting later in the day, dealers said. Traders expect the US rate-setting panel to deliver a final 25-basis-point rate hike in its current cycle.
The 10-year benchmark 7.26%, 2033 bond ended at 101.76 rupees, or 7.01% yield, against 101.15 rupees, or 7.09% yield, on Tuesday.
Moreover, a big corporate entity was speculated to have stocked up on gilts to meet its liquidity requirements before a merger, dealers said. “We heard that there was buying on behalf of one major corporation and one bank that recently merged,” a dealer at a primary dealership said. “After the initial buy by corporate, traders also participated in the rally.”
Some segments of the market have also started factoring in a pause by the US Federal Reserve, which weighed on the yields. The market has already priced in a 25-bps hike by the Fed, dealers said. All eyes will be on Fed Chair Jerome Powell’s statement, which may provide a guidance on potential rate cuts or a prolonged pause going ahead, dealers said.
“The rise (in prices) is partly due to US Treasury, and partly due to momentum buying,” a dealer at a private bank said. “From here, everything depends on US Federal Reserve’s decision, whether the yield fall more or they retrace from here.”
According to the CME FedWatch tool, about 88% of Fed fund futures traders expect a 25-bps rate hike by the Federal Reserve, while the rest see the Fed funds rate unchanged at 4.75-5.00% in May.
The yield on the benchmark 10-year US Treasury note fell to 3.41% today as compared to 3.53% at the end of Indian market hours on Tuesday. 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.
Some dealers said if the yield on the benchmark 10-year 2033 bond falls below the psychologically-crucial level of 7.00%, it may slump to 6.90-6.95%. However, it may not sustain there for long given the supply pressures back home, dealers said. The 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).
The current trend in the market wasn’t limited to trading alone. Investors were building up their gilt portfolios, dealers said. Meanwhile, traders were reluctant to buy short-term bonds as they can’t book profits on the bonds in the secondary market due to limited trade volume.
Today, trade volume increased significantly compared with the last few days. The market usually keeps to the sidelines before major events such as the US FOMC’s rate decision, among others. However, the market seems positive about a favourable outcome from the Fed’s meeting, dealers said.
According to data on the Reserve Bank of India’s Negotiated Dealing System–Order Matching platform, the turnover was 868.15 bln rupees, compared with 413.40 bln rupees on Friday. Meanwhile, two trades aggregating 200 million rupees were settled with the digital rupee today as compared to no trade on Tuesday.
OUTLOOK
On Thursday, bond prices are seen taking cues from the US Federal Open Market Committee’s decision on rates, dealers said.
Traders may also track overnight movement in US Treasury yields and crude oil prices.
The yield on the 10-year benchmark 7.26%, 2033 bond is seen at 6.92-7.08%.
India Gilts: Remain up as traders gauge FOMC’s outlook on rates
NEW DELHI – Government bonds remained sharply higher due to positive sentiment ahead of the outcome of the US Federal Open Market Committee’s meeting later in the day, dealers said. They expect the US rate-setting panel to deliver a final 25-basis-point rate hike in its current cycle.
Some segments of the market have also started factoring in a pause by the US Federal Reserve, which further aided prices. “A 25-bps hike is already priced in by the market, if they (US Federal Reserve committee) say anything about pause or even hint towards it, the market will rise further 4-5 bps (yield on the benchmark 7.26%, 2033 paper),” a dealer at a state-owned bank said. “But if they just hike rate and don’t give any outlook on interest rate, there will be profit booking on domestic yield and US Treasury also.”
The current trend in the market wasn’t limited to trading alone; investors were building up their gilt portfolios, dealers said. Meanwhile, traders were reluctant to buy short-term bonds as they can’t book profits on the bonds in the secondary market due to limited trade volume.
All eyes will be on Federal Reserve Chairman Jerome Powell’s statement, which may provide a guidance on potential rate cuts or a prolonged pause going ahead, dealers said.
According to data on the Reserve Bank of India’s Negotiated Dealing System–Order Matching platform–the marketwide turnover was 667.40 bln rupees at 1515 IST compared with 262.90 bln rupees at 1510 IST on Tuesday.
For the rest of the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 6.99-7.07%. (Anjali)
India Gilts: Rise further as mkt bets on final rate hike by US FOMC
MUMBAI–1200 IST–Prices of government bonds rose as the market expects the US Federal Open Market Committee to deliver its final rate hike in the current cycle, dealers said. A section of the market has also started pricing in a pause by the US Federal Reserve, which aided the gains in domestic government bonds.
“There seems to be demand in the duration (10- and 14-year papers), that’s why the rally seems to be limited in the longer end,” a dealer at a state-owned bank said. “The market sees that there is scope of even a pause by the Fed, but the uncertainty is seen in the shorter-term papers.”
According to dealers, if the yield on the benchmark 10-year 2033 bond falls below the psychologically-crucial level of 7.00%, it may slump to 6.90-6.95%, provided the Federal Reserve delivers a positive outlook.
The US rate-setting panel is widely expected to opt for a 25-basis-point rate hike, taking the federal funds rate to the 5.00-5.25% range, which has been fully priced in, dealers said. Moreover, the recent turmoil in the western banking sector supports a softer rate view, dealers said.
All eyes will be on Federal Reserve Chairman Jerome Powell’s statement, which may provide further guidance on potential rate cuts or prolonged pause going ahead, dealers said.
Today, trade volumes increased significantly compared with the last few days. The market usually keeps to the sidelines before major events such as the US FOMC’s rate decision, among others. However, the market seems positive about a favourable outcome from the Federal Reserve’s meeting, dealers said.
According to data on the Reserve Bank of India’s Negotiated Dealing System–Order Matching platform–the marketwide turnover was 433.55 bln rupees at 1200 IST compared with 146.55 bln rupees at 1230 IST on Tuesday.
For the rest of the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 6.99-7.07%. (Nishat Anjum)
India Gilts: Surge as US yields slump ahead of outcome of FOMC meet
MUMBAI–0946 IST–Prices of government bonds rose sharply today as US Treasury yields fell ahead of the outcome of the US Federal Open Market Committee’s meeting later in the day, dealers said. The market widely expects the US rate-setting panel to deliver a final rate hike in the current cycle.
“Our market has already factored in a dovish policy and a rate hike of 25 basis points by the US Federal Reserve,” a dealer at a private bank said. “From now, we look at possible rate cuts by Fed.” The recent turmoil in the banking sector has led traders to bet on a softer US rate hike view, dealers said.
Yield on the benchmark 10-year 2033 bond may fall to 7.00% on a softer rate view in the US. However, it may not sustain there for long given the supply pressures back home, dealers said. The 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).
The gains in the shorter-term bonds were less in comparison to other on-the-run gilts, as traders avoided betting aggressively on short-end ahead of the Fed decision, dealers said.
According to the CME FedWatch tool, about 86% of Fed fund futures traders expect a 25-bps rate hike by the Federal Reserve, while the rest see the Fed funds rate unchanged at 4.75-5.00% in May.
The market awaits the US Fed Chair Jerome Powell’s statement that may provide future guidance regarding how long rates will remain elevated and when rate cuts could get underway.
According to data on the Reserve Bank of India’s Negotiated Dealing System–Order Matching platform–the marketwide turnover was 150.90 bln rupees at 0946 IST compared with 35.65 bln rupees at 0930 IST on Tuesday.
During the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.02-7.09%. (Nishat Anjum)
India Gilts: Seen up tracking fall in US yields; FOMC outcome eyed
MUMBAI – Government bond prices are seen opening higher, tracking a fall in US Treasury yields, dealers said. Moreover, traders await the US Federal Open Market Committee’s decision which is scheduled to be released later in the day.
Today, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.06-7.13%, against 7.09% on Tuesday.
US Treasury yields fell on Tuesday ahead of the US Federal Reserve’s policy review outcome. Yield on the benchmark 10-year US Treasury note fell to 3.44% on Tuesday as compared to 3.59% on Monday. 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 US central bank is expected to raise its benchmark overnight interest rate by another 25 basis points to the 5.00%-5.25% range before potentially pausing its fastest monetary policy tightening campaign since the 1980s.
Treasury investors strengthened bets that the Fed will reverse its interest rate-hiking course sooner than expected, amid a wide sell-off in regional bank stocks and signs that government funds will run short by June.
The market also keenly awaits the statement by US Fed Chair Jerome Powell which may provide guidance on how long rates will remain elevated and when rate cuts could get underway. After the recent trouble in the banking sector, traders have started expecting a soft US rate view along with a hike of 25-bps, dealers said.
The market may track global cues during the day on lack of firm domestic cues, dealers said. Meanwhile, on Tuesday Informist reported the government expects its borrowing cost to be lower by 20-25 bps in the first half of the current financial year started April on account of the Monetary Policy Committee leaving the repo rate unchanged in April, against the expectation of a 25-bps hike. (Nishat Anjum)
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Aditya Sakorar
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