Informist, Thursday, Nov 25, 2021
By Vaibhav Chakraborty
NEW DELHI – Government bonds ended steady today as global cues were largely stable compared to the recent volatility amid uncertainty over interest rate view and concerns over economic growth, dealers said.
The 10-year benchmark 6.10%, 2031 bond ended at 98.09 rupees or 6.37% yield, flat from Wednesday.
Yields have mainly been driven by global volatility over the last month due to rising inflation in Europe and the US. Market players believe that the high inflation prints could pose a risk to the nascent economic growth if central banks do not tighten monetary policy support, dealers said.
However, central banks have taken a cautionary approach to normalise the monetary policy conditions as they believe that the current rise in inflation is largely transitory in nature due to supply-side bottlenecks.
The recent spike in coronavirus cases in Europe has dampened the outlook on the global economic growth. Austria has already placed the country under lockdown, and authorities in Germany have warned of severe measures to limit the spread of virus.
Amid such uncertainty, traders believe that adding or reducing too much exposure to gilts could lead to sharp losses as there is growing clamour around the world for central banks to push ahead with their tapering of monetary policy stimulus and chart a path for interest rates, dealers said.
“Most of the accelerated tapering view has been priced in by the market as we have been mostly dependent on global cues for quite some time now. I believe that these levels (range) should stay for sometime until we start to see action and announcements from central banks,” said a dealer with a private bank.
Meanwhile, market shrugged off the comments of US Federal Open Market Committee members in the minutes of the recent policy meet released late on Wednesday, as traders believe that much of the views have already been priced in by both domestic and foreign investors, dealers said.
Several members of the Federal Open Market Committee said the committee should be ready to adjust the pace of asset purchase tapering and interest rate hikes amid rising inflation, which could pose a risk to fragile economic growth.
After US CPI inflation touched a three-decade high in October, yield on the 10-year benchmark US Treasury note has risen 21 basis points since Nov 9, as the Fed is expected to accelerate its asset purchase tapering and hike interest rates earlier than expected, dealers said.
“There is little interest in the market to trade on view, rather we are seeing need-based trades and not a substantial move on the yields, which is why the RBI has also remained quiet and hasn’t tried to intervene of late,” the dealer added.
Traders also exercised caution ahead of the 240-bnl-rupee weekly gilt auction on Friday. The government will borrow 20 bln rupees through the sale of the new 2023 bond, 60 bln rupees through the 5.74%, 2026 gilt, 90 bln rupees through the 6.67%, 2035 bond, and 70 bln rupees through the 6.99%, 2051 bond.
According to data on the RBI’s Negotiated Dealing System – Order Matching Platform, the market-wide turnover was 182.80 bln rupees, against 211.25 bln rupees on Wednesday.
OVERNIGHT INDEXED SWAP
Swap rates were also steady today as traders refrained from placing large bets due to lack of domestic and global cues on interest rates, dealers said.
The one-year swap rate ended at 4.36%, flat from Wednesday. The five-year swap rate ended at 5.50% compared with the previous close of 5.51%.
“Market has been ahead of the curve when it comes to pricing in rate hikes and aggressive tapering. Swaps have been volatile for most part of the last few weeks, but my sense is that they should consolidate here and maybe move 3-5 bps on either side. Beyond that I don’t see much scope,” said a dealer with a primary dealership.
Traders also expect swap rates to consolidate around the current levels after the volatility due to global uncertainty in the recent weeks, dealers said.
OUTLOOK
On Friday, gilts may open steady as traders are likely to exercise caution ahead of the 240-bln-rupee weekly gilt auction.
Traders may also refrain from placing large bets on lack of significant domestic cues, and keep to the sidelines in the run-up to RBI’s next policy review meet from Dec 6-8.
Uncertainty over global interest rates amid rising inflation could weigh on 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: Steady amid firm global cues; FOMC hints of taper step-up
NEW DELHI–1030 IST–Government bonds were steady because traders refrained from placing large bets as overnight global cues were firm after the recent volatility, dealers said.
Globally, the past few months have seen volatility on account of uncertainty about the pace with which central banks are likely to unwind the pandemic-era stimulus measures and eventual rate hikes, dealers said.
Prices are expected to remain within a narrow range during the day, despite comments from US Federal Open Market Committee members to prepare to adjust the pace of asset purchase tapering and the consequent rate hikes to address the rising inflation, dealers said.
“Traders want to stay balanced at this juncture, because most of the recent developments on interest rates have been fairly priced in since US CPI rose, in the last few weeks we have seen that whatever buying or selling has been there has not sustained and been tracking global cues,” a dealer with a state-owned bank said.
Traders say that the eventual shift from an accommodative policy to an interest rate hikes environment has largely been factored into the domestic gilts as the US CPI inflation touching a three-decade high had sped up the shift, dealers said.
Meanwhile, traders believe that the Reserve Bank of India seems to have elbow room to maintain an accommodative stance even as it may narrow down the Liquidity Adjustment Facility corridor by hiking the reverse repo rate in the upcoming monetary policy meets, dealers said.
“Globally, things are changing quickly, but I feel that apart from a reverse repo hike in Dec or Feb, the RBI still has sufficient legroom and even the reverse repo hike has been priced in the shorter tenure segment,” the dealer added.
The yield on the 10-year benchmark 6.10%, 2031 bond is seen at 6.35-6.39%. (Vaibhav Chakraborty)
India Gilts: Seen steady; US FOMC minutes hint at faster tapering
NEW DELHI – Government bond prices may open steady today because traders may refrain from placing large bets amid uncertainty over the near term interest rates and economic growth outlook, globally.
Several members of the US Federal Open Market Committee, in the minutes released on Wednesday, said the committee should be ready to adjust the pace of asset purchase tapering and interest rate hikes amid rising inflation, which could pose a risk to fragile economic growth.
Yield on the 10-year benchmark US Treasury note inched 3 basis points lower to settle at 1.64% on Wednesday despite comments from the FOMC members and robust economic data in the US.
Traders expect that views from the US FOMC members could prompt selling in papers maturing up to two years and also lead to traders paying fixed interest rates in shorter maturity overnight indexed swap rates.
To curtail rising inflation, Bank of Korea today raised its policy rate by 25 basis points to 1%, following a similar move by the Reserve Bank of New Zealand on Wednesday. This raises expectations that other central banks may follow suit too.
However, any losses are likely to be limited as the market seems to have priced in an earlier-than-expected reversal of the ultra-accommodative measures and interest rate hikes by central banks, globally amid rising inflation.
Meanwhile, crude oil prices were steady on Wednesday after a 3% jump on Tuesday as investors assessed the effectiveness of US and major importers’ move to release strategic oil reserves to cool off prices.
On the domestic front, with no major cues lined up currently and the Reserve Bank of India’s monetary policy set to be detailed in early December, traders are not keen to add or reduce their exposure to gilts.
The yield on the 10-year benchmark 6.10%, 2031 bond is seen at 6.35-6.39%. (Vaibhav Chakraborty)
End
US$1 = 74.51 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Ashish Shirke
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