Informist, Wednesday, Nov 24, 2021
By Aaryan Khanna
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NEW DELHI – Government bonds ended sharply off lows today on value buying triggered by a fall in US Treasury yields, which had risen over the past two days on caution ahead of the release of minutes of the Federal Reserve’s recent monetary policy meeting.
The 10-year benchmark 6.10%, 2031 bond ended at 98.09 rupees or 6.37% yield today, as against 98.11 rupees and 6.36% on Tuesday.
Globally, bond investors had bet on a faster-than-expected tapering of the stimulus programme and interest rate hikes in subsequent policy meetings by the US Federal Open Market Committee after Fed Chair Jerome Powell’s renomination to the post on Monday.
Yield on the 10-year benchmark US Treasury note jumped 13 basis points over the last two days, but fell 4 bps to 1.63% in Asian trade today, and was steady at that level at the end of market hours.
The minutes of the Fed’s November meeting, when the central bank decided to begin tapering its asset purchases by $15 bln every month, are scheduled to be released later today.
Investors stepped up purchases of the 10-year benchmark 6.10%, 2031 bond as its yield rose to the psychologically-crucial 6.38% in early trade. Traders stocked up further on gilts at prices considered cheap after the fall in US yields, dealers said.
“We’re all following US yields closely, because there is no trigger closer to home, which is shown by the low volumes,” a dealer at a foreign bank said. “I think overnight indexed swaps are playing a big role in the current market situation, and they didn’t move much today.”
A rise in crude oil prices, despite decision by the US and other countries, including India, to release oil from their strategic reserves, weighed on sentiment for domestic gilts.
The Brent crude oil futures contract for January delivery settled 3% higher at $82.31 per barrel on Tuesday.
However, traders were sanguine in cutting their gilt holdings as crude prices were below recent highs and import-led inflation may ease once the extra supply from the coordinated move by governments hits the market, dealers said.
Dealers said gilts may remain steady in the run-up to the Reserve Bank of India’s next policy review in December, with a sharp move up unlikely due to global uncertainty and fears of quickening inflation domestically due to surging food prices.
Bets on the downside were also limited as yield on the 10-year benchmark was seen having strong support approaching the psychologically-crucial 6.40% mark, particularly as public sector banks have space in their portfolios, dealers said.
Meanwhile, volumes were muted as traders kept to the sidelines as there were no significant domestic triggers and concerns over the trajectory of global interest rates and growth, dealers said.
Banks avoided short bets ahead of the 240-bln-rupee gilts auction on caution before the FOMC minutes. Further, traders were seen demanding the new on-the-run 5.74%, 2026 paper at only its second auction, dealers said.
“I haven’t seen any significant pressure build up on the papers at the auction so far, there’s no guarantee a short (sell strategy) will not lose money if Powell is bullish in the minutes,” a dealer at a private bank said.
According to data on the RBI’s Negotiated Dealing System – Order Matching Platform, the market-wide turnover today was 211.25 bln rupees, against 233.40 bln rupees on Tuesday.
OUTLOOK
On Thursday, gilts may take cues from overnight movement in US Treasury yields due to comments on growth and inflation by Federal Reserve officials in the minutes of its latest policy meet.
The minutes of the Federal Open Market Committee’s November meeting are scheduled to be released later today.
Traders may refrain from placing large bets on a lack significant domestic cues. Further, traders may keep to the sidelines in the run-up to the RBI’s next policy review meet from Dec 6-8.
Uncertainty over global interest rates amid rising inflation could weigh on domestic bonds in the near term.
Any sharp movement in crude oil prices might also lend cues at open.
Yield on the 10-year benchmark 6.10%, 2031 bond is seen at 6.34-6.40%.
India Gilts: Recover early losses on value buying amid thin trade
NEW DELHI–1400 IST–Government bonds recovered early losses and were in a thin band due to value buying triggered by a fall in US Treasury yields after a sharp overnight rise, dealers said.
Yields fell on caution ahead of the release of the minutes of the US Federal Reserve’s recent policy review as investors await Chair Jerome Powell’s comments on growth and inflation, after he was nominated to the office for a second term.
The minutes of the Fed’s November meeting, when the central bank decided to begin tapering asset purchases by $15 bln every month, are scheduled to be released after market hours today.
Yield on the 10-year benchmark US Treasury note jumped 13 basis points over the last two days, settling at 1.67% on Tuesday, but fell to 1.63% in trade today.
Domestically, investors stepped up purchases of the 10-year benchmark 6.10%, 2031 bond as its yield rose to the psychologically-crucial 6.38% in early trade. Dealers were of the view that gilts may remain steady in the run-up to the Reserve Bank of India’s next policy review in December.
“The market is set in its range and there is unlikely to be a breakout on either side with the volatility US yields and crude prices discouraging heavy positions, and there is some support (for the 6.10%, 2031 bond) at 6.38% yield, and then 6.40% as well,” a dealer at a primary dealership said.
Volumes were low today as traders kept to the sidelines as there were no significant domestic triggers and also due to uncertainty over the trajectory of global interest rates and growth prospects, dealers said.
Yield on the 10-year benchmark 6.10%, 2031 bond is seen at 6.35-6.39%. (Aaryan Khanna)
India Gilts: Dn on rise in US ylds amid Fed interest rate uncertainty
NEW DELHI–1020 IST–Government bonds were down because of an overnight rise in the US yields amid concerns over near-term interest rates in the country as the US Federal Reserve is expected to accelerate tapering of its asset purchases, dealers said.
With the US President Joe Biden nominating Jerome Powell for a second term as the Chair of the Federal Reserve, investors expect the current path of policy unwinding to continue, but with inflation touching a three-decade high in October, there is a likelihood of the central bank looking withdraw its monetary policy support at an accelerated pace. Following these developments, the yield on the 10-year benchmark US Treasury note has surged by 13 basis points.
“There is a weakness due to global cues, but don’t expect much to happen as there is no interest in the market due to so much of global uncertainty, and we have seen that these (yield) ranges haven’t been broken yet and there is some bit of demand to buy at these levels,” a dealer with a private bank said.
The Fed has emphasised that it will contemplate hiking interest rates once it is done with tapering its asset purchases, which has led to the view that the central bank could hike the Fed Fund’s Rate twice next year by 25 basis points each in June and November, dealers said.
However, traders believe that amid the uncertainty over interest rates and economic growth, the losses are likely to be limited, as investors are seen stepping up purchases of the dated securities at lucrative levels, dealers said.
Meanwhile, a rise in crude oil prices despite efforts by the US and other nations to release oil from their strategic reserves to cool off prices, also weighed on government bonds. Brent crude oil futures for January delivery settled 3% higher on Tuesday at $82.31 per barrel.
The yield on the 10-year benchmark 6.10%, 2031 bond is seen at 6.35-6.39%. (Vaibhav Chakraborty)
India Gilts: Seen down on rise in US ylds, oil amid Fed rate hike fear
NEW DELHI – Government bonds are seen opening lower due to an overnight rise in US Treasury yields as investors fear that the Federal Reserve could accelerate tapering its monetary policy support and hike interest rates earlier than anticipated.
The yield on the 10-year benchmark US Treasury note has jumped by 13 basis points over the last two days, settling at 1.67% on Tuesday, as the nomination of Jerome Powell as chair of the Federal Reserve for a second term has led to the view that the current path of policy unwinding will continue.
Meanwhile, a rise in crude oil prices despite the efforts of the US and other nations to release oil from their strategic reserves to cool off elevated prices, may also weigh on government bonds. Brent crude oil futures for January delivery settled 3% higher on Tuesday at $82.31 per barrel.
The US government, in coordination with the governments of India, China, South Korea, Japan and Britain, released oil from its strategic reserves. US President Joe Biden had called on fellow major buyers of crude to release oil from reserves after the Organization of the Petroleum Exporting Countries and its allies ignored requests to step up supply to reduce prices.
India has decided to release 5 mln barrels of oil from its strategic reserves to refiners. India has a strategic oil reserve capacity of about 38 mln bbl. The US has announced it will release 50 mln bbl of crude oil from its strategic reserves over the next several months.
Traders are of the view that the US central bank could look to accelerate its asset purchase tapering to tackle inflation, which has soared to a three-decade high in October.
Since the completion of the asset purchase programme is seen as a metric for consequent rate hikes, there is a possibility that the US Fed could hike rates twice within next year.
However, traders are of the view that global cues are unlikely to prompt a sharp reaction, as caution is being exercised ahead of the Reserve Bank of India’s monetary policy meeting next month.
The yield on the 10-year benchmark 6.10%, 2031 bond is seen at 6.35-6.39%. (Vaibhav Chakraborty)
End
US$1 = 74.40 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Aditya Sakorkar
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