Informist, Wednesday, Feb 23, 2022
By Aaryan Khanna
NEW DELHI – Government bonds closed on a mixed note, with traders stocking up on bonds of longer maturities towards the end of trade, as Brent crude oil prices tumbled from their recent seven-year highs, dealers said.
The 10-year benchmark 6.54%, 2032 bond settled at 98.57 rupees or 6.74% yield, against 98.50 rupees or 6.75% yield on Tuesday.
Various regions, including the US, the UK, Japan, and the European Union imposed sanctions on Russia on Tuesday after Russian President Vladimir Putin recognised the independence of two breakaway regions in eastern Ukraine and ordered deployment of troops in those areas.
Crude oil prices eased today after the first wave of sanctions, which were unlikely to disrupt supply of the commodity in the global market. Moreover, with the imposition of sanctions and a move to diplomatic engagements between Russia and Western nations, dealers were hopeful that the aggression would not result in an outbreak of war.
Brent crude oil futures for April slipped below the key $96-per-bbl mark at the end of Indian market hours. On Tuesday, the contract traded as high as $99.50 per bbl, its highest level since 2014.
Typically, a fall in crude oil prices reduces risks of imported inflation in India and provides more room for the Reserve Bank of India to prolong its monetary policy accommodation.
Domestic traders avoided large bets due to the uncertainty prevailing over the evolving geopolitical crisis, keeping volumes muted, dealers said.
Earlier in the day, gilts were down as traders trimmed holdings, anticipating large outflows by foreign investors from the domestic market due to the conflict.
“If you look at how volumes are behaving, the market doesn’t really have an underlying sentiment, it is likely to remain range-bound before the auction this week and until the Russia and Ukraine situation ends,” a dealer at a state-owned bank said.
The gains in long-term gilts were also because institutional investors stepped up purchases of long-dated state bonds in the secondary market due to a paucity of supply in recent weeks, allowing banks more room to invest in government bonds, dealers said.
The 10-year benchmark 6.54%, 2032 bond lagged its peers ahead of the 230-bln-rupee weekly gilt auction on Friday, with investors making room for the fresh supply of the paper this week, dealers said.
The government has offered to sell 40 bln rupees of the 2028 floating rate bond, 130 bln rupees of the 2032 bond, and 60 bln rupees of the 6.95%, 2061 bond.
Traders were also jittery after Economic Affairs Secretary Ajay Seth, speaking at a press conference on Tuesday, did not rule out the possibility of further gilt auctions after the Centre’s scheduled borrowing programme ends this week.
This month, the government has skipped its weekly borrowing twice, worth 480 bln rupees, citing robust cash balances. Dealers feared the auctions might be rescheduled to the end of the financial year in March.
“It is not something for which answer can be given on what will happen on Mar 31. It’s a dynamic situation,” Seth said, when asked whether the cancelled auctions would be rescheduled.
The secretary also assured the market that there would not be any surprises regarding government borrowing.
“I wouldn’t say his comments were alarming, but on days when the market is searching for any news to trade, the concerns over additional auctions in March are being circulated and talked about, which is not helping in finding buyers,” a dealer at a primary dealership said.
Meanwhile, short-term gilts ended steady as traders kept to the sidelines due to lack of significant cues, opting to trade in the longer-maturing papers based on overseas factors, dealers said.
According to data on the RBI’s Negotiated Dealing System – Order Matching platform, the marketwide turnover was 170.70 bln rupees, against 168.55 bln rupees on Tuesday.
OUTLOOK
On Thursday, gilts are seen opening steady as traders may keep to the sidelines due to lack of significant domestic cues.
Further, dealers may avoid large bets ahead of the release of minutes of the RBI’s Monetary Policy Committee meeting, scheduled after market hours on Thursday.
Traders may place short bets ahead of the weekly gilt auction, the first in three weeks, particularly in the 10-year benchmark 6.54%, 2032 bond.
The government has offered to sell 230 bln rupees of three gilts on Friday–40 bln rupees of the 2028 floating rate bond, 130 bln rupees of the 6.54%, 2032 bond, and 60 bln rupees of the 6.95%, 2061 bond.
The Centre had cancelled the last two weekly gilt auctions citing a healthy cash balance.
Evolving geopolitical tensions between Russia and Ukraine and the threat of war may weigh on dated securities. On the other hand, a pullback of aggression may support gilts in early trade, and could lead to volatility in the domestic market, dealers said.
Any sharp movement in US Treasury yields and crude oil prices may also steer domestic bonds in early trade.
The yield on the 10-year benchmark 6.54%, 2032 bond is seen at 6.70-6.80%.
India Gilts: Mixed; long-term gilts up as Brent crude price eases
NEW DELHI–1510 IST–Government bonds traded on a mixed note with short-term gilts in a narrow band as traders kept to the sidelines in the absence of firm cues, dealers said.
Traders stocked up on long-term gilts as Brent crude futures for April eased under the $97-per-bbl mark today, with some traders covering their short bets they had taken earlier on the view that the contract may breach the psychologically-crucial $100-per-bbl mark, dealers said.
However, the 10-year benchmark 6.54%, 2032 bond lagged its peers ahead of the 230-bln-rupee weekly gilt auction on Friday, with traders making room for the fresh supply of the paper this week, dealers said.
Meanwhile, traders awaited further cues the evolving geopolitical tensions between Russia and Ukraine and avoided placing large bets, keeping volumes muted, dealers said.
“It’s a nervous market, we aren’t sure of what to expect from Russia-Ukraine, and some comments from the economic affairs secretary indicated that the cancelled auction may be rescheduled,” a dealer at a private bank said.
On Tuesday, Economic Affairs Secretary Ajay Seth did not rule out the possibility of further gilt auctions after the Centre’s scheduled borrowing programme ends this week. Speaking a press conference, he later assured that there “will not be any surprises for the market” regarding the government borrowing.
“It is not something for which answer can be given on what will happen on Mar 31. It’s a dynamic situation,” Seth said, when asked whether the cancelled auctions will be rescheduled.
Today, yield on the 10-year benchmark 6.54%, 2032 bond is seen at 6.73-6.77%. (Aaryan Khanna)
India Gilts: Down on deepening Russia-Ukraine crisis, fresh supply Fri
NEW DELHI–1110 IST–Government bonds fell today in choppy trade as traders trimmed their holdings due to escalation in the Russia-Ukraine crisis. The 10-year benchmark 6.54%, 2032 bond led the losses as traders placed short bets ahead of fresh supply on Friday, dealers said.
Countries including the US, UK, Japan, and the European Union imposed sanctions on Russia after President Vladimir Putin recognised the independence of two breakaway regions in eastern Ukraine and ordered deployment of troops in the areas.
US President Joe Biden said that Russia’s invasion of Ukraine had begun as he announced sanctions on the major Russian bank VEB and Russia’s military bank, as well as on the country’s sovereign debt and on three individuals.
Traders remain wary of large outflows by foreign investors from the domestic market in panic towards haven assets due to the rising geopolitical tensions.
On the domestic front, traders placed short bets ahead of the weekly gilt auction on Friday.
This is the first gilt auction in three weeks, after the Centre cancelled the previous two auctions citing it healthy cash balance.
The government has offered to sell 230 bln rupees of three gilts on Friday–40 bln rupees of the 2028 floating rate bond, 130 bln rupees of the 6.54%, 2032 bond and 60 bln rupees of the 6.95%, 2061 bond.
Meanwhile, a fall in Brent crude prices from near $100 per barrel level supported bonds, dealers said.
Brent crude oil prices were close to $99 per bbl on Tuesday at close in the Indian bond market but ended sharply lower at $96.84 per bbl.
“There are no positive right now so it is falling, Russia-Ukraine tensions remain. In the morning, it opened up but the trades were very few,” a dealer with a state-owned bank said.
Today, yield on the 10-year benchmark 6.54%, 2032 bond is seen at 6.72-6.78%. (Shubham Rana)
India Gilts: Seen steady; Russia-Ukraine crisis may trigger volatility
NEW DELHI – Government bonds are seen opening steady today because traders may stay on the sidelines on lack of significant cues. However, new developments in the Russia-Ukraine crisis may result in volatility in the domestic market, dealers said.
On Tuesday, various countries imposed sanctions on Russia after President Vladimir Putin recognised the independence of two breakaway regions in eastern Ukraine and ordered deployment of troops to the areas for “peacekeeping” operations.
US President Joe Biden said that Russia’s invasion of Ukraine had begun as he announced sanctions on the major Russian bank VEB and Russia’s military bank, as well as on the country’s sovereign debt and on three individuals.
The sanctions on banks would effectively cut them out of the US banking system and ban their transactions involving dollars.
The European Union, Australia, Canada, Germany and Britain were among the other countries that imposed sanctions on Russia after it ordered troops in the two breakaway regions of Donetsk and Luhansk after recognising their independence.
Any new developments in the crisis could spook the financial markets around the world, including the Indian bond market, dealers said.
Traders will remain wary of large outflows by foreign investors from the domestic market in panic towards haven assets due to the rising geopolitical tensions.
Any surge in crude oil prices during the day could also lead to traders trimming their holdings. Typically, a rise in crude oil prices increases risks of imported inflation in India and provides less room for the RBI to prolong its monetary policy accommodation.
On the domestic front, traders may place short bets ahead of the weekly gilt auction, the first in three weeks, particularly in the 10-year benchmark 6.54%, 2032 bond.
However, they may avoid large bets as this is only the second gilt auction this month and traders fear Reserve Bank of India could reject partial or most bids at the weekly auction noting high yields as Centre’s cash balance remains healthy.
The government has offered to sell 230 bln rupees of three gilts on Friday–40 bln rupees of the 2028 floating rate bond, 130 bln rupees of the 6.54%, 2032 bond and 60 bln rupees of the 6.95%, 2061 bond.
The Centre had cancelled the last two weekly gilt auctions citing a healthy cash balance.
Today, yield on the 10-year benchmark 6.54%, 2032 bond is seen at 6.71-6.79%. (Shubham Rana)
End
US$1 = 74.56 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Avishek Dutta
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