Informist, Monday, Nov 1, 2021
NEW DELHI – Government bonds ended steady today because traders refrained from placing large bets due to a truncated week and caution ahead of the outcome of the US Federal Open Market Committee’s meet on Wednesday, dealers said.
Domestic money markets will remain shut on Thursday and Friday due to Diwali and Diwali Balipratipada, respectively.
The attention of the traders remains on the US FOMC outcome that is likely to lay the path for unwinding of its $120 bln asset purchase programme and could provide a cue on interest rates in the near term, dealers said.
Central banks, globally, either through their outright actions or through tacit signalling have suggested that the policy normalisation is already underway as the short-term rates have risen sharply including the overnight cost of funds. This primarily indicates the absorption of massive liquidity from the banking system that was rolled out to mitigate the COVID-19 pandemic, dealers said.
In the backdrop of uncertainty, the market believes that the US Federal Reserves economic and inflation projections along with their view on interest rates heading into 2022 could provide some clarity on the pace of policy unwinding that may take place, dealers said.
“The market seems to be in consolidating phase and people are not willing to add much exposure to their books at the moment,” a dealer with a private bank said. “Some bit of clarity from the US Fed could ease some of the uncertainties. Trade volumes will be low this week as it is a truncated one and there seems to be some reluctance on traders part to avoid adding risk.”
The 10-year benchmark 6.10%, 2031 bond today ended at 97.94 rupees or 6.39% yield, flat against Friday’s close.
Global headwinds continue to dominate the domestic market in the absence of the Reserve Bank of India’s intervention through open market operations, as earlier in the day prices had risen marginally on the back of a fall in the US Treasury yields and crude oil prices, dealers said.
Yield on the 10-year benchmark US Treasury had inched lower by 2 basis points to settle at 1.55% on Friday, while the January contract of crude oil on the Intercontinental Exchange had fallen to $83.03 per barrel earlier in the day before inching above the $64 mark.
Meanwhile, the US Treasury yields also inched closer to the psychologically crucial 1.60% mark and was last seen at 1.58%.
“We saw a bit of purchasing early in the day as oil and UST (US Treasury yields) were low but then we saw that there has been upward in both which led to offloading towards the end,” a dealer with a state-owned bank said. “Investors do seem to be liking the levels currently, which is why I don’t really expect the yields to move up sharply until there is a negative news.”
The current level of yields remains lucrative to step up purchases of government bonds, but due to the uncertainty surrounding interest rate view and rising crude oil prices, investors and traders would be willing to add only a limited exposure to gilts, dealers said.
According to data on the RBI’s Negotiated Dealing System – Order Matching Platform, the market-wide turnover was 127.40 bln rupees today, against 274.75 bln rupees on Friday.
OUTLOOK
Gilts may open steady on Tuesday as traders may keep to the sidelines in a truncated week and ahead of the US FOMC’s outcome on Wednesday.
Any sharp movement in US Treasury yields and crude oil prices may guide domestic bonds in early trade.
The yield on the 10-year benchmark 6.10%, 2031 bond is seen at 6.35-6.41%.
India Gilts: Off-highs, in narrow band as benign global cues reverse
NEW DELHI–1430 IST–Long-term gilts came off highs after US Treasury yields and crude oil prices reversed their losses from earlier in the day, dealers said.
US Treasury yields had fallen overnight, while Brent crude oil futures for December fell lower than Friday’s close. However, both global triggers inched up, with the 10-year US Treasury note moving closer to the psychologically-crucial 1.60% mark, leading domestic gilts to give up gains, dealers said.
Moreover, early gains in long-term gilts were amplified and distorted by low trade volumes, as traders kept to the sidelines for most of the day in a curtailed week amid a lack of significant cues, dealers said.
Some traders had bet on the Reserve Bank of India announcing aa special open market operation as yield on the 10-year benchmark 6.10%, 2031 bond approached the psychologically-crucial 6.40% level.
Others were of the view that the central bank would avoid intervening in domestic gilts until there is a sharp movement in yields from the fallout of a potential tapering announcement by the US Federal Reserve later this week, dealers said.
“Whatever movement there has been was because of the low volumes, as such there is no trend or demand today more than churn,” a dealer at a state-owned bank said.
“It is just that every time 6.10%, 2031 bond goes towards 6.40% (yield) people would start speculating the RBI to come in.”
Yield on the 10-year benchmark 6.10%, 2031 bond is seen at 6.36-6.42% today. (Aaryan Khanna)
India Gilts: Up on fall in US ylds, hope of RBI capping 2031 bond yld
NEW DELHI–1030 IST–Government bonds rose, tracking a fall in US Treasury yields, which widens the interest rate differential between the safe-haven asset and emerging market debt, making the latter more appealing to foreign investors.
The yield on the US Treasury note fell 2 basis points to 1.55% on Friday amid volatile trade ahead of the Federal Reserve’s policy review this week. While global investors expect the US central bank to beginning tapering its $120 bln worth of monthly asset purchases, US yields were anchored on the view that other central banks would unwind their ultra-accommodative policy measures at a more rapid pace.
“The movement is because of the slight easing of US yields, otherwise I expect market outside the 10-year to remain very dull today, especially with no trades at the opening,” a dealer at private bank said.
Gilts were also up due to some value buying after a sharp fall in prices at the end of last week. The 10-year benchmark 6.10%, 2031 bond fell 37 paise from Wednesday, with the benchmark yield up 5 basis points. Investors stepped up purchases, expecting that the Reserve Bank of India will cap benchmark yield as it moved close to the 6.40% mark, dealers said.
Meanwhile, trade volumes were muted as traders kept to the sidelines during a truncated week. Money markets will be shut on Thursday and Friday for Diwali.
The yield on the 10-year benchmark 6.10%, 2031 bond is seen at 6.36-6.42% today. (Aaryan Khanna)
India Gilts: Seen steady in curtailed week amid lack of cues
NEW DELHI – Government bonds are seen opening steady as traders may keep to the sidelines in a curtailed week amid a lack of significant domestic cues, dealers said.
Money markets will be shut on Thursday and Friday for Diwali.
Further, traders are seen to be cautious ahead of the Federal Open Market Committee meet later this week, dealers said. The Fed is set to begin its policy review on Tuesday, and will announce the outcome of the meeting after market hours Wednesday.
In the US, Friday’s data showed a gain in employment costs and consumer inflation for September, raising concerns that the US Federal Reserve could take aggressive policy action to combat the surge in prices. This includes beginning to taper its $120 bln worth of asset purchases every month, which global investors view as likely and may lead to a spike in domestic bond yields, dealers said.
Investors may step up purchases of the 6.10%, 2031 bond as its yield approaches 6.40% on the view that the Reserve Bank of India may move to cap the benchmark yield above the figure, dealers said.
Dealers had been expecting the RBI to announce an open market operation over the past few weeks since yields on gilts had risen sharply tracking global cues. On Thursday, certain sections of the market were of the view that the central bank would announce a special open market operation after market hours.
In the absence of any open market operation announcements from the RBI, the yield on the 10-year benchmark 6.10%, 2031 bond may consolidate around the cut-off set by the RBI of 6.39% at its auction on Friday. Traders viewed that as a signal that the central bank was not comfortable with the benchmark yield topping 6.40% in the near term, dealers said.
Meanwhile, short-term bonds may lag their longer-maturity peers after the central bank ramped up its liquidity absorption measures. On Tuesday, the RBI will conduct a 28-day, 500-bln-rupee variable rate reverse repo operation, in addition to a similar operation maturing in seven days, worth 1.5 trln rupees. This is the first such operation of a tenure above 14 days after the RBI’s revised liquidity management framework was adopted in February 2020.
Traders may trim their holdings of bonds maturing in up to five years on the view that the RBI is now moving to absorb excess liquidity in the financial system on a more durable basis. The 5.63%, 2026 bond may be particularly under pressure as the yield on the five-year benchmark has not risen as much as shorter-maturity gilts, dealers said.
Yield on the 10-year benchmark 6.10%, 2031 bond is seen at 6.36-6.42% today. (Aaryan Khanna)
End
US$1 = 74.87 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Arshad Hussain
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