Informist, Wednesday, Jun 21, 2023
By Kasthuri Akhil
MUMBAI – Prices of government bonds ended lower today as traders placed short bets ahead of the 310-bln-rupee auction on Friday, dealers said.
The 10-year benchmark 7.26%, 2033 bond ended at 101.32 rupees, or 7.07% yield, against 101.38 rupees, or 7.06% yield, on Tuesday.
“Some traders booked profits in the end, short bets have also increased from yesterday (Tuesday) before Friday’s auction,” a dealer at a private bank said. “Traders have been selling also because of hawkish policy fears in global markets because of high inflation.”
The government will sell 70 bln rupees of the 7.17%, 2030 bond; 120 bln rupees of the 7.41%, 2036 bond; and 120 bln rupees of the 7.25%, 2063 bond on Friday.
Traders avoided placing aggressive bets during the day as they maintained caution ahead of key events, amid a lack of firm domestic cues. Market eyed the US Federal Reserve Chair Jerome Powell’s remarks in his testimony before the US Congress scheduled later today and Thursday. Investors hope to gain clarity on the Fed’s plan of action to bring inflation closer to its 2% target.
Earlier in the June policy review, although the US rate-setting panel kept the Federal funds target range unchanged at 5.00-5.25%, Fed officials hinted at two more rate hikes by the end of 2023.
Fears of aggressive policy tightening by global central banks further ramped up after UK’s inflation data for May came in higher than market expectations, ahead of the Bank of England’s policy review on Thursday, dealers said. Headline inflation in the UK rose by 8.7% on year in May, against expectations of an annual rise of 8.4% according to a Reuters’ poll.
Back home, market sentiment remained weighed down by overseas factors, with no fresh cues in sight on the domestic front, dealers said. Some traders sold their bond holdings on the view that prices may fall further by the end of the month, dealers said.
However, prices moved in a narrow range throughout the day due to two-way trades at yield levels considered lucrative on the 10-year benchmark 2033 paper. A section of the market expects the yield on the paper to rise to 7.09-7.10% on the 10-year paper, keeping traders from stepping up purchases at the current market levels, dealers said.
Traders expected domestic bond yields to rise in Jul-Sep due to higher debt supply in the quarter and low bond redemption. However, the rise in yields may be limited as state-owned banks are again expected to step up purchases at around 7.10% yield levels on the 2033 paper, considered lucrative, dealers speculated.
“Gilt movement is subdued as the market is cautiously waiting to get some clarity regarding US (interest rates) from Powell’s speech,” a dealer at a state-owned bank said. “Though today there was some swap interest in the five-year as traders would use the arbitrage for profit.” The five-year overnight indexed swap rate ended at 6.22% today, as against 6.19% the previous day.
According to data on RBI’s Negotiated Dealing System-Order Matching platform, the turnover today was 355.50 bln rupees, compared with 509.30 bln rupees on Tuesday.
Meanwhile, no trades were settled with the digital rupee today. A total of 350 mln rupees of trades were settled in five deals on Tuesday.
OUTLOOK
On Thursday, government bonds are seen opening steady due to lack of significant domestic cues. Traders may also keep to the sidelines due to caution ahead of the minutes of the Reserve Bank of India’s Monetary Policy Committee’s meeting in June, due Thursday, dealers said.
Traders may track any overnight movement in US Treasury yields and crude oil prices.
The yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.03-7.10%.
India Gilts: Remain a tad down tracking intraday rise in US yields
MUMBAI–1430 IST–Prices of government bonds remained slightly down as US Treasury yields inched up during the day following the higher than expected May inflation in the UK, dealers said.
“There was some selling after UK inflation came in higher. Now the market is stable again,” a dealer at a private bank said. “Now there maybe some profit booking by the end of the quarter, and yields could go to 7.09-7.10% (on 7.26%, 2033 bond).”
Headline inflation in the UK rose by 8.7% on year in May, and 0.7% on month. Economists polled by Reuters had projected an annual rise of 8.4% in the headline inflation. Investor worries grew ahead of the Bank of England’s monetary policy review on Thursday regarding the size and pace of interest rate hikes by the central bank to control the persistently high inflation.
As a consequence, yield on the benchmark 10-year US Treasury note rose to 3.76% during the day from the day’s low of 3.73%, that weighed on prices. A rise in US Treasury yields narrows the interest rate differential between the haven asset and emerging market debt, making the latter less appealing to foreign investors.
Traders expected domestic bond yields to rise in Jul-Sep due to higher debt supply in the quarter and low bond redemption. However, the rise in yields may be limited as state-owned banks may step up purchases at around 7.10% levels, considered lucrative, dealers speculated.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the marketwide turnover was 246.90 bln rupees at 1430 IST, compared with 352.30 bln rupees at 1430 IST on Tuesday.
For the rest of the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.04-7.08%. (Kasthuri Akhil)
India Gilts: In thin band; mkt cautious ahead of Powell’s testimony
MUMBAI–1135 IST–Prices of government bonds were in a thin band as traders avoided placing aggressive bets due to caution ahead of the US Federal Reserve Chair Jerome Powell’s testimony at the Capitol Hill, scheduled for today and Thursday.
“There are no negative cues on the domestic front, but it is the caution that Powell will try sound to hawkish in his testimony,” a dealer at a state-owned bank said. “The movement is very range bound, like that we saw yesterday (Tuesday) too.”
There have been two-way trades at the key yield levels on the 7.26%, 2033 bond, which has kept the price movement in a narrow range, but the trade volume has increased, dealers said.
The state-owned banks that bought the 10-year, 2033 paper around 7.03-7.04%, may not be able to add more to their portfolios, dealers said. Moreover, there is a section of the market that expects the yield to go to 7.10% on the 10-year paper, so that is where the buying momentum is expected to be built.
Minutes of the Reserve Bank of India’s Monetary Policy Committee’s June meet are also due on Thursday. Dealers said that the minutes of the domestic rate-setting panel is expected to be a non-event for the market.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the marketwide turnover was 101.70 bln rupees at 1135 IST, compared with 183.95 bln rupees at 1130 IST on Tuesday.
For rest of the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.03-7.08%. (Nishat Anjum)
India Gilts: Largely unchanged as mkt awaits Fed Powell’s testimony
MUMBAI–0937 IST–Prices of government bonds were largely unchanged in thin trade as traders refrained from placing aggressive bets ahead of the US Federal Reserve Chair Jerome Powell’s testimony at the Capitol Hill, scheduled for today and Thursday.
According to the CME’s FedWatch tool, about 77% of Fed fund futures traders expect the US rate-setting panel to hike the federal fund rate by 25 basis points at its July meeting, while the rest expect it to remain unchanged at 5.00-5.25%.
“Market will remain range bound due to the testimony lined up. However, volume may pick up during the day,” a dealer at a state-owned bank said. “It is easy to say we are de-linked with the US. Back then, there was demand here, so our market took it well. Situation is different now.”
Minutes of the Reserve Bank of India’s Monetary Policy Committee’s June meet are also due on Thursday, adding to the caution in the market, dealers said.
The market sentiment remains hampered as traders worry over the El Nino concerns on the domestic front and fears of aggressive monetary policy by global central banks, dealers said.
Bank of England’s monetary policy decision is due on Thursday, where it is largely expected to raise the interest rates by 25 bps. Moreover, according to media reports, to curb a stubbornly high inflation, the UK policy interest rate could now rise to over 6%, from 4.5% currently.
Slight overnight fall in US Treasury yields keep gilts afloat, dealers said. US Treasury yields fell on Tuesday as market priced in expectations of US Federal Reserve nearing the end of its rate-hiking cycle. The yield on the benchmark 10-year US Treasury note inched down to 3.74% from 3.77% at the time of Indian market close on Tuesday.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the marketwide turnover was 31.05 bln rupees at 0930 IST, compared with 53.80 bln rupees at 0930 IST on Tuesday.
During the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.02-7.08%. (Nishat Anjum)
India Gilts: Seen steady before Powell’s testimony, MPC meet minutes
MUMBAI – Prices of government bonds are seen opening steady as traders keenly await US Federal Reserve Chairman Jerome Powell’s testimony before the US Congress, scheduled for today and Thursday, as well as the minutes of the Reserve Bank of India’s latest policy meet, due Thursday.
Today, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.03-7.09% as against 7.06% on Tuesday.
Investors are eyeing Powell’s testimony before the US Congress for clues on the future interest rate trajectory in the world’s largest economy.
According to the CME’s FedWatch tool, about 77% of Fed fund futures traders expect the US rate-setting panel to hike the federal fund rate by 25 basis points at its July meeting, while the rest expect it to remain unchanged at 5.00-5.25%.
Further, the minutes of the Reserve Bank of India’s June meeting may provide insights into the decision-making rationale of panel members and the future rate trajectory, dealers said.
The domestic market may remain directionless during the day due to the lack of firm domestic cues, which has been the case since the decisions of the Reserve Bank of India’s Monetary Policy Committee and the US Federal Open Market Committee, dealers said.
It will be crucial to see if the yield on the benchmark 2033 bond can sustainably go above the 7.06% level after the two-way trade on Tuesday kept it around those levels for the larger part of the day, dealers said. (Nishat Anjum)
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Vidhi Verma
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