Informist, Friday, May 20, 2022
By Aaryan Khanna
NEW DELHI – Government bonds ended sharply lower tracking a surge in crude oil prices and US Treasury yields, with the result of the 320-bln-rupee auction on expected lines and failing to impact the market, dealers said.
The 10-year benchmark 6.54%, 2032 bond settled at 94.40 rupees, or 7.36% yield, as against 94.65 rupees, or 7.32% yield, on Thursday.
Gilts had slumped early in the day due to an overnight jump in crude oil prices, which was exacerbated later in the day as US Treasury yields climbed.
Crude prices settled higher in a volatile session on Thursday due to weakness in the dollar and expectations that China could ease some COVID-19 lockdown restrictions.
The Brent crude oil contract for July delivery ended $112.04 a barrel on Thursday, almost $5 a bbl higher than the price at the closing of Indian financial markets on Thursday.
Meanwhile, the yield on the 10-year US Treasury note was 4 basis points higher today than the 2.82% at the end of Indian market hours on Thursday.
While gilts fell, volumes were lacklustre and traders avoided large bets ahead of the result of the auction with only external cues weighing on bond prices, dealers said.
Domestic triggers were largely priced into gilts, with the market anticipating a 50-basis-point repo rate hike at the June policy review after the minutes of the off-cycle Monetary Policy Committee meet on Wednesday.
“It was a mix of factors that led to the fall, but mostly it was the crude weighing on the market that led to a generally downward trend. On the whole, the market didn’t trade much even on the auction result,” a dealer at a private bank said.
The weekly auction sailed through at yields seen lucrative, but traders avoided bidding aggressively due to the impending supply as well as likely rate hikes by the central bank.
The RBI set the coupon on the new 14-year, 2036 bond at 7.54%, 1 bp above the expected coupon in an Informist poll of 15 traders.
Investors were keen to add to their portfolios at the auction, which were lighter due to the maturity of bonds during the month, dealers said.
Meanwhile, traders covered their short bets in the 5.74%, 2026 gilt, which they had built up during the week, dealers said.
Moreover, the yield on the 2026 gilt was seen pricing in the sharp pace of rate hikes and was in favour for state-owned banks as well, dealers said.
“The carry for the 2026 paper is about 100 bps higher than even the terminal repo rate we are seeing, for a 4.5 year gilt, so at these levels we didn’t think it would face any difficulty at the auction.
Close to the end of the day, the RBI’s central board of directors today approved the transfer of 303.07 bln rupees as surplus to the central government for the financial year 2021-22 (Apr-Mar).
This was less than a third of the 991.22 bln it had transferred for the truncated nine-month-long accounting year ended March 2021.
According to data on the RBI’s Negotiated Dealing System – Order Matching platform, the market-wide turnover was 248.20 bln rupees compared with 309.40 bln rupees on Thursday.
OUTLOOK
Gilts are not traded on Saturday.
On Monday, government bonds may open steady as traders may keep to the sidelines due to a lack of significant domestic cues.
Central bank observers had expected the RBI’s surplus transfer to be 500-600 bln rupees, much higher than the actual transfer of 303.07 bln rupees.
Market participants may be concerned that the lower surplus transfer may lead the Centre to undershoot the budgeted estimate for its capital receipts, and trim their gilt holdings, dealers said.
The RBI’s open market operations outside of auction will also be eyed for cues.
Traders will also keep an eye on any sharp movements in crude oil prices and US Treasury yields.
The yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.33-7.39%.
India Gilts: Fall more as US yields climb; auction result eyed
NEW DELHI–1310 IST–Government bonds fell further today tracking a rise in US Treasury yields and crude oil prices, which led domestic traders to trim their gilt holdings, dealers said.
The Brent crude oil contract for July delivery was over $4 higher than $107.16 a barrel at the end of Indian market hours on Thursday. Today, yield on the 10-year US Treasury note was 5 basis points higher than 2.82% seen at the end of Indian market hours on the previous day.
“All of the weakness is from external factors today, the internal factors are absent because the entire market is waiting for the auction,” a dealer at a state-owned bank said.
Traders avoided large bets ahead of the result of the 320-bln-rupee weekly gilt auction, eyeing cues from the aggressiveness of bidders at the issuance of a new 14-year, 2036 bond, dealers said.
Demand at the auction was seen firm, particularly for the benchmark 2026 and 2036 papers, likely from state-owned banks. Moreover, traders may cover short bets in the 5.74%, 2026 bond taken in the run-up to the auction, dealers said.
Today, yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.31-7.38%. (Aaryan Khanna)
India Gilts: Fall as crude oil rises; volumes muted ahead of auction
NEW DELHI–0930 IST–Government bonds fell ahead of the auction today due to a rise in crude oil prices, dealers said. Trade volumes were muted as traders stayed on the sidelines ahead of the result of the
320-bln-rupee weekly auction.
Crude oil prices ended higher on Thursday due to weakness in the dollar and expectations that China could ease some COVID-19 lockdown restrictions, which could boost demand.
The Brent crude oil contract for July delivery ended at $112.04 a barrel on Thursday.
“Market is seeing crude right now. On Thursday, bonds rose because of fall in crude Wednesday, and today it is the reverse of that,” a dealer at a private bank said. “The auction today should sail through, but we will have to see which segment will look to get the new 2036 paper.”
The government has offered to sell 90 bln rupees of the 5.74%, 2026 bond, 40 bln rupees of the floating rate bond 2034, 100 bln rupees of a new 2036 bond, and 90 bln rupees of the 6.99%, 2051 bond.
Short selling before auction has been limited because the government will issue a new 14-year paper today. The issuance of a new 14-year paper would mean that the current 14-year 6.67%, 2035 will not see fresh issuance going ahead, limiting the number of short bets that traders would look to place in the bond, dealers said.
Today, yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.31-7.38%. (Shubham Rana)
India Gilts: May fall ahead of auction, weighed dn by rise in crude
NEW DELHI – Government bonds may open lower today ahead of the 320-bln-rupee auction, weighed down by a rise in crude oil prices, dealers said.
The government has offered to sell 90 bln rupees of the 5.74%, 2026 bond, 40 bln rupees of the floating rate bond 2034, 100 bln rupees of a new 2036 bond, and 90 bln rupees of the 6.99%, 2051 bond.
Crude prices settled higher in a volatile session on Thursday due to weakness in the dollar and expectations that China could ease some COVID-19 lockdown restrictions which could boost demand.
The Brent crude oil contract for July delivery ended $112.04 a barrel on Thursday, sharply higher than the price at the closing of Indian financial markets.
Traders are unlikely to place large number of short bets before the auction today as the most short-sold papers, the 6.54%, 2032 and the 6.67%, 2035 bonds, are both not up for sale today, dealers said.
While the 10-year benchmark will be auctioned next week, the 6.67%, 2035 bond is unlikely to see any fresh issuance further with the Centre issuing a new 14-year paper at today’s auction.
Some traders may also stay on the sidelines amid a weak appetite for dated securities because of the double whammy of a record high gilts supply and the rising interest rate environment.
The minutes of the Monetary Policy Committee’s off-cycle meeting, released on Wednesday, showed that the committee is looking to front load the rate hikes.
According to a poll of 16 economists and treasury officials, a majority of participants expect the rate-setting panel to hike repo rate by around 50 basis points at the Jun 6-8 policy meeting and to raise the rate further to 5.15% by August.
Today, yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.30-7.38%, as against 7.32% on Thursday. (Shubham Rana)
End
US$1 = 77.57 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Arshad Hussain
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