Informist, Tuesday, Jan 16, 2024
By Anupreksha Jain and Siddhi Chauhan
MUMBAI – Prices of government bonds ended slightly higher as foreign banks and mutual funds stepped up their purchases, dealers said. However, gains were limited as state-owned banks sold gilts at a profit.
The 10-year benchmark 7.18%, 2033 bond closed at 100.23 rupees, or 7.15% yield, compared with 100.19 rupees, or 7.15% yield, on Monday.
“There is buying interest on the 10-year (7.18%, 2033 bond) from foreign banks and mutual funds. However, this got offset as PSUs (state-owned banks) are booking profits,” a dealer at a state-owned bank said. “This is why the prices are in the same range as yesterday (Monday).”
Some mutual funds picked the 10-year benchmark as they have received inflows, dealers said. Mutual funds preferred the 7.18%, 2033 gilt as it was both eligible under the fully accessible route, set to receive robust foreign portfolio investor inflows, while also offering higher capital gains than the short-term bonds that these institutions typically prefer, dealers said.
Foreign banks likely bought gilts under the fully accessible route for foreign portfolio investors ahead of India’s inclusion in JP Morgan’s Emerging Market bond index in June, dealers said. FPI activity had also picked up after Bloomberg proposed adding fully accessible route bonds to its Emerging Market Local Currency Index over five months starting September.
In addition to state-owned banks, dealers speculated that insurance companies and pension funds were on the selling side to make room for fresh supply from the 350-bln-rupee weekly gilt auction on Friday, which will feature 120 bln rupees of the 40-year gilt and 50 bln rupees of a 30-year green bond.
On Friday, the government will sell 80 bln rupees of the 7.33%, 2026 bond, 100 bln rupees of the 7.18%, 2037 bond, 120 bln rupees of the 7.25%, 2063 bond, and 50 bln rupees of a new 2054 green bond at the auction.
According to Clearing Corp of India data, ‘Others’–a category which includes insurance companies and provident funds–were net sellers to the tune of 11.72 bln rupees on Monday, and traders said they continued that pattern today. State-owned banks had sold 56.37 bln rupees on Monday, and also trimmed their gilt holdings today on the view that the 10-year gilt may struggle to find buyers below the key 7.12% yield mark, dealers said.
A rise in US Treasury yields also capped gains in bond prices, and may have prompted some gilt selling from private banks, dealers said. Atlanta Federal Reserve President Raphael Bostic said on Monday said he prefers interest rates to stay on hold until at least summer, as against expectations of a rate cut by March in the world’s largest economy.
The yield on the 10-year benchmark US Treasury note was at 4.01% at the end of market hours today, as against 3.94% at the time of Friday’s settlement. US financial markets were shut on Monday for Martin Luther King Jr. Day.
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.
“Overall, the market today ended steady because profit booking happened across all segments of the market,” a dealer at a primary dealership said. “There were positive sentiments in the market. US yields were also not much of a worrying factor, but this triggered profit booking.”
One of the positive sentiments in the market was that India’s retail inflation rate based on the CPI was at 5.69% in December, against the 5.9% median estimate in an Informist poll of economists. The reading increased hopes that the Monetary Policy Committee would soften its stance to “neutral” from “withdrawal of accommodation” at the next policy review in February, dealers said.
However, bonds maturing up to five years underperformed long-term gilts throughout the day. Traders were concerned that the rate-setting panel may change its stance only after the US Federal Open Market Committee clearly indicates rate cuts, and may wait for the US policy outcome of Jan 31 to take fresh bets after recent comments from US officials suggested rate cuts in the world’s largest economy may be delayed.
Meanwhile, the auction of state government securities failed to lend fresh cues to the market, dealers said. The cutoff for the 10-year state bonds was largely in line with market expectations, but demand for the 30-year bond was more robust as investors preferred spread assets over gilts.
Nine states sold 192 bln rupees through the sale of bonds today, as against 281.50 bln rupees scheduled for this week in the indicative calendar for Jan-Mar.
For the rest of the week, traders expect primary dealerships to place aggressive short bets on the 7.18%, 2037 bond, ahead of the weekly gilt auction on Friday, dealers said. Some dealers speculated a small quantum of short bets were built up in the benchmark 14-year paper today as well.
According to data on the RBI’s Negotiated Dealing System-Order Matching platform, the turnover today was 409.35 bln rupees, down from 585.80 bln rupees on Monday. Two trades of 100 mln rupees were carried out using the wholesale digital rupee pilot today, as against four trades adding up to 200 mln on Monday.
OUTLOOK
On Wednesday, bond prices may open steady as traders will likely avoid aggressive bets due to lack of firm domestic cues, dealers said. Any sharp movement in US Treasury yields or crude oil prices may lend cues at the opening.
The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.14-7.20% during the day.
India Gilts: Long-term bonds up; gains limited on profit booking
MUMBAI–1400 IST–Government bonds maturing in seven years or more rose due to aggressive purchases from mutual funds and foreign banks. Gains were capped as state-owned banks sold their holdings at a profit, dealers said.
Bonds maturing in up to five years traded in a thin band despite the prospect of a softening in policy stance in February, dealers said. Traders generally prefer shorter-tenure papers as they tend to be more sensitive to rate cuts, typically making them lucrative in the run-up to policy easing.
Traders were concerned that the Monetary Policy Committee may change its stance only after the US Federal Open Market Committee clearly indicates rate cuts, and may wait for the US policy outcome of Jan 31 to take fresh bets after recent comments from US officials suggested rate cuts in the world’s largest economy may be delayed.
Buyers may avoid stocking up on gilts if the 10-year benchmark yield falls below the key 7.12% mark, dealers said. This had also prompted a wave of selling bonds at a profit from state-owned banks this week, dealers said. According to Clearing Corp of India data, state-owned banks sold 56.37 bln rupees of gilts on Monday.
“Foreign banks and mutual funds are buying the 10-year paper (7.18%, 2033 paper) as the market is quite positive. The market is seeing a change in stance, so it has started to price that in,” a dealer at a state-owned bank said. “As a result, the market expects the yield (on the 10-year paper) to reach 7.12% levels.”
Mutual funds picked the 10-year benchmark as they have received inflows from policyholders. Foreign banks picked up the paper under the fully accessible route for foreign portfolio investors ahead of India’s inclusion in JP Morgan’s emerging market bond index in June, dealers said.
Nine states raised 192 bln rupees through the sale of bonds today, as against 281.50 bln rupees scheduled for this week in the indicative calendar for Jan-Mar. The result did not lend cues to gilt prices as it was on expected lines, though demand for the 30-year bond was more robust than expected, dealers said.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 262.55 bln rupees, as against 397.35 bln rupees at 1330 IST on Monday.
During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.13-7.18%. (Siddhi Chauhan)
India Gilts: Rise as foreign banks, mutual funds step up purchase
MUMBAI–1023 IST–Prices of government bonds rose as foreign banks and mutual funds stepped up their purchases due to positive sentiment on both the rates and supply front. A rise in US Treasury yields pushed prices lower at the open and limited gains despite the buying investors, dealers said.
The yield on the 10-year US Treasury note went back to the crucial 4.00% mark in Asian trade, up 6 basis points from Friday’s close, after not trading on Monday as US financial markets were shut on account of Martin Luther King Jr. Day.
“However, foreign banks and mutual funds have picked up the 10-year paper, which helped the gilt prices,” a dealer at a private bank said. “Also other factors such as lower CPI and lower-than-indicative calendar for state government securities gave boost to the prices.”
India’s retail inflation rate based on the CPI was at 5.69% in December, against the 5.9% median estimate in an Informist poll of economists. The reading increased hopes that the Monetary Policy Committee would soften its stance to “neutral” from “withdrawal of accommodation” at the next policy review in February, dealers said.
Mutual funds are deploying inflows from policyholders, particularly in long-term gilt schemes, in the 10-year bond, dealers said. The 14-year benchmark bond was out of favour for them as it was on offer at the weekly gilt auction on Friday, making it a preferred bond for placing short bets, dealers said.
Despite this, the 7.18%, 2037 gained the most among on-the-run gilts due to the lower-than-indicated borrowing quantum at the state government securities auction, with most of the cut in supply seen concentrated near the 14-year tenure, dealers said. Nine states will raise 192 bln rupees through the sale of bonds today, as against 281.50 bln rupees scheduled for this week in the indicative calendar.
The demand from investors at the auction would be closely eyed, particularly as this is the second straight week that state bond supply has missed the indicated amount, dealers said.
Meanwhile, foreign banks likely bought gilts under the fully accessible route for foreign portfolio investors ahead of India’s inclusion in JP Morgan’s emerging market bond index in June, dealers said. FPI activity had also picked up after Bloomberg proposed adding fully accessible route bonds to its Emerging Market Local Currency Index over five months starting September.
With expectation of an increase in demand from foreign portfolio investors, the demand-supply dynamics in the gilt market may remain positive going forward, dealers said.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 103.20 bln rupees, as against 248.25 bln rupees at 0930 IST on Monday.
During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.13-7.18%. (Anupreksha Jain)
India Gilts: Seen opening lower on rise in US yields in Asian trade
MUMBAI – Prices of government bonds are seen opening lower, tracking a rise in US Treasury yields in Asian trade today, dealers said. Traders may avoid placing aggressive bets due to lack of firm domestic cues.
The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.13-7.18% today, against 7.15% on Monday.
The yield on the 10-year benchmark US Treasury note traded at 4.00% in Asian trading hours, as against 3.94% at the time of Friday’s settlement. 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.
US yields rose back to the 4.00% mark in Asian trade, after not trading on Monday, as US financial markets were shut on account of Martin Luther King Jr. Day.
During the day, traders expect foreign banks to step up purchases of bonds, which might limit the fall in gilt prices, dealers said. Foreign banks have been the top net buyers for the last six consecutive days, data from Clearing Corp of India showed.
Moreover, after lower-than-expected December inflation data back home, as well as less than expected state bond supply this week, market sentiment may remain positive, dealers said. India’s retail inflation rate based on the CPI rose to a four-month high of 5.69% in December from 5.55% in November, mainly because of the statistical effect of a low base, data showed on Friday.
With expectations of an increase in demand from foreign portfolio investors, the demand-supply dynamics in the gilt market may remain positive going forward, dealers said.
The Reserve Bank of India on Friday said nine states would raise 192 bln rupees through the sale of bonds today, as against 281.50 bln rupees in the indicative calendar for Jan-Mar. Demand from investors at the auction would be eyed for further cues, dealers said. (M.C. Adhiinthran)
End
Edited by Aditya Sakorkar
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