Informist, Thursday, Sep 21, 2023
By Aaryan Khanna
NEW DELHI – Government bond prices reversed losses and ended higher as traders stocked up due to hope that an announcement of the listing of India’s gilts on global emerging market bond indices was imminent and could well be made next week, dealers said. The anticipation overcame the impact of a sharp rise in US Treasury yields.
The 10-year benchmark 7.26%, 2033 bond closed at 100.63 rupees, or 7.17% yield, against 100.57 rupees, or 7.17% yield, on Wednesday. The 7.18%, 2033 bond closed at 100.24 rupees, or 7.14% yield, against 100.18 rupees, or 7.15%, the previous trading day.
JPMorgan will hold a two-day India Investor Summit in Mumbai from Monday, according to the bank’s website. JPMorgan is one of the index providers, along with FTSE Russell, that is scheduled to conduct its half-yearly review in September. Dealers expend the lender’s chief executive, Jamie Dimon, to make a trip to India for the event.
Traders speculated that JPMorgan could announce India’s inclusion to its Global Bond Index – Emerging Market at the event next week, while some expected an announcement even before that, dealers said. Inclusion into JPMorgan’s index is expected to drive inflows of about $30 bln into India’s gilts in the first year.
With the event being reserved for JPMorgan’s invitees alone, such an announcement was unlikely as the index provider is likely to make the announcement in a formal release rather than relying on the opportunity, dealers said.
Typically, FTSE Russell announces the results of its review exercise at the end of the month, while JPMorgan’s announcement comes the next month. Both the providers have India on their watchlist for index inclusion into the respective emerging market bond indices and are scheduled to review these indices in September.
“You can’t play a position against the flow of rumours,” a dealer at a primary dealership said. “And the market has always been like this: you buy the rumour and sell the news.”
Traders trimmed their holdings towards the end of the day, looking to minimise risk from cues overnight. The 7.26%, 2033 bond saw a wave of sellers booking profit as its yield fell to the key 7.15% level, which convinced traders that a further rise in prices was unlikely despite testing the level during the day, dealers said.
Some sections of the market also remained unconvinced that the bond index inclusion would happen at all, despite reports of the Reserve Bank of India meeting foreign banks to discuss hurdles to the move, dealers said. Foreign fund managers were also keen to hold India’s gilts and diversify away from China’s debt, dealers said.
“I don’t think it’s an easy task to include gilts on indices with all the operational issues that people complain about,” a dealer at a state-owned bank said. “They would also have to rely on the RBI (Reserve Bank of India) and the government to smoothen the process by the time the inclusion actually happens, which so far has not looked the most promising.”
Primary dealers also placed short bets in on-the-run gilts ahead of the weekly gilt auction on Friday. At the auction, the government will sell 80 bln rupees of the 7.06%, 2028 bond, 140 bln rupees of the 7.18%, 2033 bond, and 110 bln rupees of the 7.30%, 2053 bond.
Traders were wary of running up prices before the debt sale, with the last two auctions not drawing firm bids after prices had jumped on the Thursdays prior to the auction. Last week, gilts gave up all gains made on Thursday after the disappointing auction on Friday.
Gilt prices had slumped early in the day, tracking a sharp rise in US Treasury yields, after the outcome of the US Federal Open Market Committee’s meeting late on Wednesday.
The yield on the benchmark 10-year US Treasury note rose 10 basis points to 4.45% at the end of Indian market hours, touching an almost 16-year high, against 4.35% on Wednesday. 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.
After opting for a rate hike in July, the FOMC kept the federal funds target range unchanged at 5.25-5.50%, as widely expected. However, projections by US Federal Reserve officials indicated that rates in the world’s largest economy would remain higher for longer.
The officials project another 25-bps rate hike in the remainder of 2023, which has two more policy reviews scheduled – in November and December. Moreover, the Fed officials said they anticipate the Fed funds target range at the end of 2024 to be 5.00-5.25%, a reduction of only 50 bps.
Regardless, while the Indian market would not be able to ignore the daily movement in US Treasury yields, hope of bond index inclusion would continue to buoy prices until a decision is announced by index providers, dealers said.
“These is a bottom and a top to this range as well,” a dealer at a private bank said. “There is a lot of protection for the market at 7.20%, but even at the 7.10% level, you would get a bounce from PSU banks selling bonds.”
According to data on the RBI’s Negotiated Dealing System-Order Matching platform, the turnover today was 653.90 bln rupees, compared with 358.60 bln rupees on Wednesday. There were no trades today with the digital rupee pilot for the third straight trading session.
OUTLOOK
Government bonds may open steady on Friday due to caution ahead of the 330-bln-rupee weekly gilt auction at 1030-1130 IST, dealers said.
News of India’s inclusion into bond indices may spur further purchases and move the 10-year benchmark yield towards the key 7.15% mark, which is likely to draw sales from state-owned banks, dealers said.
A sharp move in US Treasury yields and crude oil prices could also be a trigger for gilt prices at open.
The yield on the 10-year benchmark 7.26%, 2033 bond is seen in a range of 7.11-7.22%.
India Gilts: Reverse losses; rise on bond index inclusion hopes
NEW DELHI–1600 IST–Government bonds reversed all losses and rose as traders placed bets that India’s gilts could be announced for inclusion on JPMorgan’s index for emerging market bonds within the week, dealers said.
Some market participants also said that there was speculation of a decision on bond indices being announced as early as after market hours today, dealers said. Volume and prices both jumped after returning to the previous close.
When asked why gilt prices had risen, a private bank trader said, “Rumours.”
JPMorgan’s Global Bond Index – Emerging Market is likely to drive $30 bln of passive inflows in the market, and would drag gilt yields lower by 5-10 basis points immediately, dealers said. Hopes of index inclusion have led to bond prices surging despite adverse global cues, with traders disregarding a rise in US Treasury yields overnight that had led to prices trading lower for most of the day.
“Nobody has any idea why the market has jumped, but it looks like someone has swung for the fences on index inclusion,” a dealer at a state-owned bank said.
Some traders suggested a technical break in the 7.26%, 2033 gilt that led to the jump in prices, while others said that traders booked profit as the 10-year benchmark yield declined to 7.15%. The sudden reversal in prices had led to short sellers covering some bets, which had spurred further rise at the 100.60 price level on the 7.26%, 2033 bond, dealers said.
“There is a strong technical level at 100.74 (price on the 7.26%, 2033 bond), but people are breaking that,” a fund manager at a mutual fund said. “I was expecting it to be tested eventually, but not today.”
Some traders were wary that large intraday bets would be sold off by the end of market hours, dragging on prices. Domestic traders are likely to take profits as the 10-year benchmark yield falls to between 7.00-7.05% if the inclusion is announced, dealers said.
According to data on the Reserve Bank of India’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 324.20 bln rupees, compared with 282.85 bln rupees at 1530 IST on Wednesday.
For the rest of the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.12-7.20%, while that on the 7.18%, 2033 bond is seen at 7.10-7.18%. (Aaryan Khanna)
India Gilts: Off lows as speculation on index inclusion mounts
NEW DELHI–1405 IST–Government bond prices were off lows on speculation the announcement of India’s inclusion on global indices for sovereign debt is imminent, with some traders expecting it before next week, dealers said.
JPMorgan will hold a two-day India Investor Summit in Mumbai that starts on Monday, according to the bank’s website. JPMorgan is one of the index providers, along with FTSE Russell that is scheduled to conduct its half-yearly review in September. The lender’s CEO, Jamie Dimon, is expected to make a trip to India for the event.
Traders speculated JPMorgan could announce India’s inclusion to its Global Bond Index – Emerging Market at the event next week, while one insurer has speculated that clarity on the bond index inclusion could come today, dealers said. Inclusion into JPMorgan’s index is expected to drive inflows of about $30 bln into India’s gilts in the first year.
“The market is being supported because these stories are going around. We’re not the only one with access to such things,” a dealer at a primary dealership said.
Typically, FTSE Russell announces the results of its review exercise at the end of the month, while JPMorgan does it the next month. Both the providers have India on their watchlist for index inclusion into the respective emerging market bond indices.
Bond prices remained lower tracking a sharp rise in US Treasury yields after the US Federal Open Market Committee’s outcome late Wednesday. While the panel held interest rates as expected, US Federal Reserve officials suggested they would hike rates one more time in 2023 and keep rates high next year as well, with only a cumulative 50-basis-point rate cut expected in 2024.
Yield on the benchmark 10-year US Treasury note rose to 4.42%, as against 4.35% at the time of Indian market close on Wednesday. A fall from 4.45% earlier in the day also aided the recovery in prices.
Adverse global cues continued to weigh on prices but investor demand for the 7.26%, 2033 bond as its yield approached 7.20% restricted losses and suggested the downside in prices was limited until there is clarity on bond index inclusion, dealers said.
“For now, everyone has bought their part in hope of inclusion, if that news doesn’t come true, then we will be again above 7.20%. And if inclusion happens, 7.20% will be history,” another dealer at a primary dealership said.
According to data on the Reserve Bank of India’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 324.20 bln rupees, compared with 220.30 bln rupees at 1330 IST on Wednesday.
During the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.18-7.22%, while that on the 7.18%, 2033 bond is seen at 7.16-7.20%. (Aaryan Khanna)
India Gilts: Dn as US yields rise on fears of another Fed rate hike
MUMBAI–0945 IST–Prices of government bonds fell tracking a sharp rise in US Treasury yields following the outcome of the Federal Open Market Committee’s meeting, dealers said. However, some investors stepped up purchase of the benchmark 10-year 7.26%, 2033 bond around 7.20% yield levels, which is considered lucrative, limiting the losses.
“People would wait a few days more to see the US yields movement, before aggressively covering their short bets,” a dealer at a state-owned bank said. “Moreover, 10-year paper’s auction is there tomorrow (Friday).”
On Friday, the government will sell 80 bln rupees of the 7.06%, 2028 bond, 140 bln rupees of the 7.18%, 2033 bond, and 110 bln rupees of the 7.30%, 2053 bond. Traders typically cover their short bets at the weekly gilt auction.
However, some traders covered their short bets, which limited the fall in the gilt prices, expecting that the US Treasury yields may not rise any further, dealers said.
Yield on the benchmark 10-year US Treasury note surged to 4.44%, as against 4.35% at the time of Indian market close on Wednesday. US yields surged as the Federal Open Market Committee kept the rates unchanged at 5.25-5.50%, and Federal Reserve officials projected one more rate hike by the end of 2023.
Dealers expect the market to move in narrow band after the initial fall in prices, as the market lacked firm domestic cues. The market eyes Bank of England’s policy rate decision, due later today, dealers said.
A Reuters’ poll of 65 economists forecast a final 25-basis-point rate hike by the Bank of England at its meeting, before the central bank takes a pause in the backdrop of slowing economic growth.
The trade volume remains concentrated in the long-term papers, which has been the case since banking system liquidity slipped into deficit, dealers said. At the start of trade today, liquidity in the system was estimated to be in a deficit of 1.12 trln rupees.
According to data on the Reserve Bank of India’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 68.65 bln rupees at 0942 IST, compared with 47.20 bln rupees at 0930 IST on Wednesday.
During the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.18-7.22%, while that on the 7.18%, 2033 bond is seen at 7.16-7.20%. (Nishat Anjum)
India Gilts: Seen lower as US yields surge post FOMC meet outcome
MUMBAI – Prices of government bonds are seen opening lower tracking a surge in US Treasury yields, dealers said. Traders may closely track the movement in US Treasury yields throughout the day due to a lack of significant domestic cues.
The yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.15-7.25% today as against 7.17% on Wednesday. The yield on the 7.18%, 2033 bond is seen at 7.13-7.20% as against 7.15% the previous day.
US yields surged as the Federal Open Market Committee kept the rates unchanged at 5.25-5.50%, but Federal Reserve officials projected one more rate hike by the end of 2023.
The committee had earlier applied brakes on its rate hike cycle in June, before hiking by 25 basis points in July.
Fed officials guided that they weren’t done with rate hikes this year. According to the median of projections by them, the policy rate is seen at 5.50-5.75% at the end of 2023, unchanged from June.
According to the CME Fedwatch tool, 28% Fed fund futures traders see the likelihood of a rate hike at the Fed’s policy meeting in November.
The yield on the benchmark 10-year US Treasury note rose to 4.44% in Asia trade today, touching an almost 16-year high, as against 4.35% at the time of Indian market close on Wednesday. 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.
Projections by Fed officials also indicated that interest rates may remain higher for longer in the world’s largest economy, as they revised their federal fund target range projections for next year. The officials now expect the Federal fund target rate at 5.00-5.25% by the end of 2024, 50 basis points higher than forecast in the June policy review. (Nishat Anjum)
End
Edited by Avishek Dutta
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