Informist, Wednesday, Apr 27, 2022
By Shubham Rana
NEW DELHI – Government bonds ended lower today as traders trimmed their bond holdings on comments by Monetary Policy Committee’s external member Jayanth R. Varma in an interview, dealers said.
The 10-year benchmark 6.54%, 2032 bond settled at 96.22 rupees, or 7.08% yield, against 96.42 rupees, or 7.05% yield on Tuesday.
“The market should not expect that the MPC will warn them before doing anything. Obviously, we don’t want to be disruptive,” Varma said in an interview to NewsRise.
Varma also said that India needs to act to sharply trim its CPI inflation level, which has remained elevated for too long.
“This (the fall in bond prices) is positioning before the auction on Friday, but there is also some impact of Jayanth Varma’s comments today,” said a dealer at a primary dealership. “People will place short bets before the auction.”
Traders placed short bets today also, especially in the 10-year benchmark 6.54%, 2032 bond, ahead of the 330-bln-rupee weekly auction on Friday, dealers said.
The government has offered to sell 40 bln rupees of the 4.56%, 2023 gilt, 70 bln rupees of the 7.10%, 2029 bond, 130 bln rupees of the 6.54%, 2032 gilt and 90 bln rupees of the 6.95%, 2061 gilt.
For most part of the day, bond prices moved in a narrow range, falling slightly and then recovering those losses.
“A tug of war is going on, there is healthy competition between people who are placing short bets and people who are covering,” said a dealer at a state-owned bank.
“The market now sees 7.15% as a support level, instead of 7.25% earlier. After the recent buying, people are wary that this buying might resume and are not testing yield levels higher.”
Rise in Brent crude oil prices also weighed on bonds, dealers said. Brent crude for June delivery settled over 2.5% higher at $104.99 per bbl on Tuesday, and rose further today to $106.33 a bbl.
The rise in crude oil prices was due to concerns about oil supply from Russia, and after People’s Bank of China said it would step up monetary policy support to prevent slowdown in growth in the world’s second-largest economy.
The losses in gilts were limited due to a slump in US Treasury yields, dealers said. Uncertainties surrounding the war in Ukraine and China’s COVID-19 outbreak kept investors wary of the hit to economic growth.
The yield on the 10-year benchmark US Treasury note fell 4 basis points to 2.77% on Tuesday, and today fell to as low as 2.72%.
A fall in US Treasury yields widens the interest rate differential between the haven asset and emerging market debt, making the latter less appealing to foreign investors.
According to data on the RBI’s Negotiated Dealing System – Order Matching platform, the market-wide turnover was 278.80 bln rupees compared with 370.20 bln rupees on Tuesday.
OUTLOOK
Government bonds are seen opening steady on Thursday as traders may avoid large bets due to lack of significant cues.
Some traders may place fresh short bets noting the price levels, especially in the 6.54%, 2032 bond, ahead of the weekly auction on Friday.
The quantum of short selling in gilts will be monitored for further triggers, dealers said.
Any sharp movement in crude oil prices and US Treasury yields may lend cues when the market opens.
Yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.05-7.11%.
India Gilts: Remain down ahead of auction; MPC Varma comments weigh
NEW DELHI–1515 IST–Government bonds remained down as traders placed short bets ahead of the 330-bln-rupee weekly gilt auction on Friday, dealers said.
Moreover, reports indicated that Monetary Policy Committee’s external member Jayanth R. Varma may push the rate-setting panel to hike rates in a brisk manner.
India needs to act to sharply trim its CPI inflation level, which has remained elevated for too long, Varma said in an interview to NewsRise.
“Market is looking for triggers right now to short the market. Right now it is looking at (Jayanth) Varma’s latest comments in an interview,” said a dealer at a private bank.
While bond prices have remained at the same levels for the past two days, the overall trend is likely to bring down bond prices in the face of a record gilt supply and tightening monetary policy.
The government has offered to sell 40 bln rupees of the 4.56%, 2023 gilt, 70 bln rupees of the 7.10%, 2029 bond, 130 bln rupees of the 6.54%, 2032 gilt and 90 bln rupees of the 6.95%, 2061 gilt.
Rise in Brent crude oil price also weighed on domestic bond prices, dealers said.
Brent crude for June delivery settled over 2.5% higher at $104.99 per barrel on Tuesday, and rose further to $106.33 a bbl today.
For the rest of the day, yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.03-7.10%. (Shubham Rana)
India Gilts:Down on jump in crude; losses limited by slump in US ylds
NEW DELHI–0945 IST–Government bonds fell because an overnight rise in crude oil prices led traders to place fresh short bets in long-term gilts, dealers said.
Brent crude oil futures for June delivery settled over 2.5% higher at $104.99 per bbl on Tuesday, and rose further to $105.36 a bbl in Asian trade today.
The rise in crude oil prices was due to concerns about oil supply from Russia, and after the People’s Bank of China said it would step up monetary policy support to prevent a growth slowdown in the world’s second-largest economy.
With short bets already elevated despite gilts ending off lows on Monday, traders did not short sell a large volume of the 10-year benchmark 6.54%, 2032 gilt. They looked to cover their open positions due to a fall in prices, even ahead of the upcoming supply of 130 bln rupees of the bond on Friday, dealers said.
The losses were limited due to a slump in US Treasury yields, dealers said. Uncertainties surrounding the war in Ukraine and China’s COVID-19 outbreak kept investors wary of the hit to economic growth.
The yield on the 10-year benchmark US Treasury note fell 4 basis points to 2.77% on Tuesday, and was down to 2.76% today. A fall in US Treasury yields widens the interest rate differential between the haven asset and emerging market debt, making the latter less appealing to foreign investors.
“It’s a cyclic movement eyeing crude which should again be covered at 7.10% (yield on the 10-year benchmark yield), since US yields are down, so I don’t expect too much of a fall,” a dealer at a private bank said.
Today, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.03-7.10%. (Aaryan Khanna)
India Gilts: Seen steady on mixed global cues; short positions eyed
NEW DELHI – Government bonds are seen opening steady amid mixed global cues, with crude oil prices on the boil but US Treasury yields falling sharply overnight, dealers said.
US Treasury yields settled lower on Tuesday as uncertainties surrounding the war in Ukraine and the US Federal Reserve’s likely moves efforts to bring down the soaring inflation kept investors cautious.
Investors also fear that a Shanghai-style lockdown of the Chinese capital would further cloud the country’s economic outlook, as COVID-19 cases continue to surge and mass testing is expanded in Beijing.
The yield on the 10-year benchmark US Treasury note fell 4 basis points to 2.77% on Tuesday, and it fell further to 2.75% in early Asian trade today.
On the other hand, crude oil prices settled higher in volatile trading on Tuesday with the market weighing concerns over Russian supply and declining Chinese demand.
Prices were also supported after the People’s Bank of China said it will step up monetary policy support to the real economy amid fears of a slowdown in the world’s second-largest economy.
The Brent crude oil futures for June delivery settled over 2.5% higher at $104.99 per bbl on Tuesday, and rose further to $105.76 a bbl in Asian trade today.
On the domestic front, the volume of interbank repo trades in the 10- and 14-year benchmark gilts, a proxy for tracking the quantum of short bets, will be keenly eyed once the market opens, dealers said.
Some traders are also looking to place fresh short bets in the 6.54%, 2032 bond, likely to the 80-100-bln rupee mark ahead of the weekly gilt auction on Friday, which features the paper, dealers said.
The government has offered to sell 40 bln rupees of the 4.56%, 2023 gilt, 70 bln rupees of the 7.10%, 2029 bond, 130 bln rupees of the 6.54%, 2032 gilt and 90 bln rupees of the 6.95%, 2061 gilt.
Market volumes may be elevated and price movements volatile as traders make or cover their open positions during the day, dealers said.
While the overall trend is likely to bring down bond prices in the face of a record gilt supply and tightening monetary policy, gilts may rise temporarily as traders cover a large quantum of short bets, dealers said.
Today, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.00-7.10%, as against 7.05% on Tuesday. (Aaryan Khanna)
End
US$1 = 76.53 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Ashish Shirke
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