Informist, Monday, Jul 31, 2023
By Kasthuri Akhil
NEW DELHI – Prices of government bonds ended lower as market sentiment remained downbeat due to fear of rising inflation, which left traders apprehensive about the domestic rate trajectory. Traders avoided aggressive bets due to lack of significant domestic cues, dealers said.
The 10-year benchmark 7.26%, 2033 bond closed at 100.58 rupees, or 7.17% yield, against 100.67 rupees, or 7.16% yield, on Friday.
Concerns around inflation heightened amid rising global commodity prices as crude oil prices touched the crucial level of $85 per barrel today, dealers said. Brent crude oil futures for September delivery rose to $85.59 per bbl from $83.98 per bbl at the end of Indian market hours on Friday.
However, prices moved in a narrow range for most part of the day as some traders stepped up purchases of the 10-year benchmark 2033 paper at 7.17-7.18% yield levels, which are considered lucrative, and this kept the yield on the paper from rising above 7.18%, dealers said.
“There was some buying like by PSUs (state-owned banks), and some selling by foreign banks, pretty much why prices were range-bound since morning,” a dealer at a primary dealership said. “Crude did not have much of an impact because even when it was down to $70-$75, we didn’t pay much attention to it because prices at the petrol pumps stayed the same.”
Some traders feared that if crude prices rise above $85 per bbl, it could put pressure on the domestic inflation print going forward. The RBI, in its April Monetary Policy Report, said the baseline assumption for inflation projections assumes Indian crude basket averaging $85 per bbl in 2023-24 (Apr-Mar).
This, along with expectations of headline inflation coming in above 6% in the coming months, may keep the Reserve Bank of India from hinting at a softer monetary policy at the policy review on Aug 10, dealers said. The RBI is widely expected to continue its ‘withdrawal of accomodation’ stance, along with maintaining a status quo on the repo rate at 6.50%.
“Overnight indexed swap rates are still not cooling much, which means the Reserve Bank of India will stay hawkish in the upcoming policy. Therefore, there is no reason for much rally right now,” a dealer at a primary dealership said. “Crude is not much of an issue as long as it stays within the band of $82-$90 (per bbl).”
Prices were weighed down by a rise in US yields during the first half of the trading session, when the yield on the benchmark 10-year US Treasury note rose to the psychologically crucial 4.00% mark from 3.96% at the close of Indian markets on Friday. 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.
However, the yield soon fell back to Friday’s level towards the end of Indian market hours. US yields fell on Friday as the personal consumption expenditure price index reflected that price increases cooled in June in the world’s largest economy.
The personal consumption expenditure price index, excluding food and energy, increased just 0.2% on month, in line with the Dow Jones estimate. Core personal consumption expenditure rose 4.1% on year, compared with the estimate of 4.2%. The annual rate was the lowest since September 2021.
According to data on the Reserve Bank of India’s Negotiated Dealing System-Order Matching platform, the turnover today was 327.75 bln rupees, compared with 509.05 bln rupees on Friday. Meanwhile, trades aggregating 100 mln rupees were settled in two deals with the digital rupee today, compared with trades worth 200 mln rupees settled in four deals on Friday.
OUTLOOK
On Tuesday, government bonds are seen opening steady due to lack of firm domestic cues, dealers said.
Traders may also track any sharp movement in US Treasury yields and crude oil prices.
The yield on the 10-year benchmark 7.26%, 2033 bond is seen in a range of 7.13-7.20%.
India Gilts: Down as US yields, crude up; mkt avoids aggressive bets
NEW DELHI–1540 IST–Prices of government bonds remained down today, tracking a rise in US yields and crude oil prices. Traders refrained from placing aggressive bets due to a lack of significant domestic cues, dealers said.
Dealers speculated that traders from all segments including state-owned banks stepped up purchases at the key yield levels of 7.17-7.18% on the 10-year benchmark 2033 bond, as it is considered lucrative. However, volume remained low as the market is still cautious of a further fall in prices on fears of rising inflation, dealers said.
Traders keenly await July’s inflation print, which is widely expected to come in above 6%, driven by rising vegetable prices due to monsoon-related disturbances. Additionally, concerns around crude oil prices have also resurfaced as it touched the crucial $85 per barrel mark, dealers said.
The Reserve Bank of India, in its April’s Monetary Policy Report, said the baseline assumption for inflation projections assumes Indian crude basket to average at $85 per bbl in 2023-24 (Apr-Mar).
Brent crude oil futures for September delivery were at $85.33 per bbl, compared with $83.98 per bbl at the end of Indian market hours on Friday.
Dealers were of the view that recent worries around inflation may not cause the RBI to revise its projections at the monetary policy review on Aug 10. It will however, continue its ‘withdrawal of accomodation’ stance, along with maintaining a status quo on the repo rate at 6.50%.
“The higher CPI number has been discounted. Since April it was known that CPI would be higher for July and August,” a dealer at a state-owned bank said. “It is transitional and seasonal and the number will soon come back to 5% or below that soon after.”
At the policy review in June, the RBI had revised down the CPI inflation for 2023-24 (Apr-Mar) to 5.1% from 5.2% earlier. The inflation forecast for the quarter ending June was revised to 4.6%, down from 5.1% earlier, followed by that for Jul-Sep, which was revised down to 5.2% from 5.4% earlier.
Further, the CPI forecast for Oct-Dec and Jan-Mar remained unchanged at 5.4% and 5.2%, respectively.
Meanwhile, the yield on the benchmark 10-year US Treasury note rose to 4.00% during the day from 3.96% at the end of Indian market hours on Friday, which weighed on prices, dealers said.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 242.25 bln rupees at 1540 IST, compared with 378.95 bln rupees at 1530 IST on Friday.
For rest of the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.15-7.19%. (Kasthuri Akhil)
India Gilts: Remain down due to rise in US yields, crude oil prices
NEW DELHI–1150 IST-—Prices of government bonds remained down tracking a rise in US Treasury yields. A rise in crude oil prices also raised concerns as it neared the crucial mark of $85 per barrel, weighing on market sentiment, dealers said.
The yield on the benchmark 10-year US Treasury note rose to nearly 4.00% from 3.96% at the end of Indian market hours on Friday.
“Volume is very less, but crude has been consistently increasing from the last two-three weeks. There is however, some buying support at 7.17-7.18% (yield on 10-year benchmark 2033 paper),” a dealer at a state-owned bank said. “There is no cue right now in the domestic market for the market to move much.”
The market closely eyed crude oil prices, which traders feared could put upward pressure on the domestic inflation print going forward, if it rises above $85 per bbl. This along with expectations of the headline inflation data to come in above 6% in the coming months, which may keep the Reserve Bank of India from hinting at a softer monetary policy at the policy review on Aug 10, dealers said.
The RBI in its April’s Monetary Policy Report said the baseline assumption for inflation projections assumes Indian crude basket to average $85 per bbl in 2023-24 (Apr-Mar).
Brent crude oil futures for September delivery were at $84.55 per bbl, compared with $83.98 per bbl at the end of Indian market hours on Friday.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 86.35 bln rupees at 1150 IST, compared with 140.40 bln rupees at 1132 IST on Friday.
For rest of the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.14-7.20%. (Kasthuri Akhil)
India Gilts: Down in thin trade; mkt sentiment dull after Fri auction
MUMBAI–0935 IST–Prices of government bonds fell tracking a rise in the US Treasury yield, dealers said. However, traders avoided placing large bets, keeping the trade volume low.
After falling sharply on Friday, the market now would ideally want a clear sense of direction before placing large bets, dealers said. On Friday, the 10-year benchmark 7.26%, 2033 bond closed 27 paise lower at 100.67 rupees. A rise in US Treasury yields and a lower-than-expected cut-off on the 7.26%, 2033 bond at the 330-bln-rupee bond auction had weighed on gilts.
“It is the month-end, people have lost money over past week, there is no real direction to follow either,” a dealer at a foreign bank said. “Only a protection of 7.18% (yield on the 2033 bond) will not lead to reversal, there are no major buys from investors”
The market sentiment remained dull after the gilt auction cutoffs on Friday was lower than market expectation, dealers said. Adding to it was the rising fears of a higher inflation print going forward, as the commodity remained high both offshore and onshore.
Traders now increasingly expect the inflation print for July to be above the crucial mark of 6%, dealers said. The Reserve Bank of India has an inflation target of 4% and a tolerance band of 2-6%.
The market now fears that in the upcoming policy review, the Monetary Policy Committee may not hint at a softer policy, given the fears of rising retail inflation, dealers said. The upcoming domestic policy review meeting is scheduled for Aug 8-10.
Meanwhile, yield on the benchmark 10-year US Treasury note rose to 3.99% in early trade as against 3.96% at the time of Indian market close on Friday. 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.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 10.20 bln rupees at 0930 IST compared with 54.10 bln rupees at 0930 IST on Friday.
During the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.14-7.20%. (Nishat Anjum)
India Gilts: Seen opening steady for lack of firm domestic cues
MUMBAI – Prices of government bonds are seen opening steady as traders may avoid aggressive bets due to lack of significant domestic cues, dealers said. During the day, traders may follow the movement in the US Treasury yields closely.
Today, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.12-7.20% as against 7.16% on Friday.
US Treasury yields fell on Friday as the personal consumption expenditure price index reflected that price increases cooled in June in the world’s largest economy. Yield on the benchmark 10-year US Treasury note fell to 3.96% on Friday, as against 4.01% on Thursday.
The personal consumption expenditures price index, excluding food and energy, increased just 0.2% on month, in line with the Dow Jones estimate. Core personal consumption expenditures rose 4.1% on year, compared with the estimate for 4.2%. The annual rate was the lowest since September 2021.
Meanwhile, the market may also keep a keen eye on the crude oil prices as it inches closer to the crucial mark of $85 per barrel. The Reserve Bank of India in its April’s Monetary Policy Report said the baseline assumption for inflation projections vis-a-vis crude oil–Indian basket–is $85 per bbl during 2023-24 (Apr-Mar).
Brent crude oil futures for September delivery were at $84.67 per bbl in Asian trade today compared with $83.91 per bbl at the end of Indian market hours on Monday.
On the domestic front, expectation of rising inflation in the coming months may weigh on the market sentiment, dealers said. (Nishat Anjum)
End
US$1 = 82.25 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Avishek Dutta
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