Informist, Monday, May 30, 2022
By Shubham Rana
NEW DELHI – Government bonds ended lower today, tracking a rise in crude oil prices and the five-year overnight indexed swap rate, dealers said.
The 10-year benchmark 6.54%, 2032 bond settled at 94.08 rupees, or 7.41% yield, against 94.47 rupees, or 7.35% yield on Friday.
Brent crude prices rose to two-month-highs today ahead of a European Union meeting, at which a sixth package of sanctions against Russia will be discussed. The Brent crude contract for July delivery settled over $2 higher at $119.43 a barrel on Friday, and surged past the key $120-a-bbl mark today.
Typically, a rise in crude oil prices increases the risk of imported inflation in India and provides less room for the Reserve Bank of India to prolong its monetary policy accommodation.
“If crude stays at these elevate levels, then it is bad news for the market,” a dealer at a state-owned bank said. “Reserve Bank of India will be forced to hike rate more aggressively even after the Centre took measures to control inflation if crude stays here or rises further.”
During the day, investors stepped up purchases of the 10-year benchmark 6.54%, 2032 bond as the benchmark yield rose above 7.38% in early trade which was a key technical level and considered lucrative by some state-owned banks, dealers said.
However, a rise in 5-year OIS pushed the yield on the 10-year 2032 bond beyond 7.41%.
The five-year OIS rose sharply today, to as much as 6.98%, likely because traders paid higher fixed rates noting elevated crude oil prices, dealers said. Moreover, the recent fall in the 5-year swap was seen overdone by traders, which has prompted a reversal in rates, dealers said.
“There was also news that Centre’s fertiliser subsidy may go up this year, which also led to some selling pressure during the day,” a dealer at another state-owned bank said.
Informist reported today, citing a senior finance ministry official, that the government’s fertiliser subsidy bill is likely to rise further to 2.50 trln rupees in the current financial year started April. The Budget for 2022-23 (Apr-Mar) had pegged fertiliser subsidy at 1.05 trln rupees, but it was raised to 2.15 trln rupees following the sharp rise in international prices.
Earlier this month, Finance Minister Nirmala Sitharaman had said the government was providing an additional 1.10 trln rupees as fertiliser subsidy in the current financial year.
The central bank’s bond sales in open market operations outside auctions also drove down the appetite for dated securities. Data released after market hours on Friday showed the RBI had sold 7.50 bln rupees in the week to May 20, the third sale in four weeks, totalling 32.95 bln rupees.
Volumes were muted today as traders stayed on the sidelines due to caution ahead of data on India’s GDP growth for Jan-Mar, scheduled to be released after market hours on Tuesday.
India’s GDP growth is likely to have moderated to 4.1% in the March quarter, according to the median of 22 economists polled by Informist, lower than the 4.8% assumed by the National Statistical Office in its second advance estimate.
According to data on RBI’s Negotiated Dealing System – Order Matching platform, the market-wide turnover was 267.30 bln rupees compared with 244.05 bln rupees on Friday.
OUTLOOK
On Tuesday, government bonds are seen opening steady as traders may stay on the sidelines ahead of the release of GDP data for Jan-Mar as well as the government’s spending figures for 2021-22 (Apr-Mar) and the month of April, all scheduled for release after market hours on Tuesday.
India’s GDP growth is likely to have moderated to 4.1% in the March quarter, according to the median of 22 economists polled by Informist.
Traders will also keep an eye on any sharp movements in crude oil prices or US Treasury yields for triggers.
The yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.37-7.45%.
India Gilts: Down more tracking rise in OIS; elevated crude weighs
NEW DELHI–1422 IST–Government bond prices fell more as traders continued to trim their bond holdings with crude oil prices at two-month-high levels. Further, a surge in the five-year overnight indexed swap rate also weighed on domestic bonds, dealer said.
Brent crude prices rose ahead of a European Union meeting, where a sixth package of sanctions against Russia will be discussed for its invasion of Ukraine.
The Brent crude contract for July delivery settled over $2 higher at $119.43 a barrel on Friday and surged past the key $120-a-bbl mark today.
The five-year OIS rose sharply today, topping 6.98%, likely because offshore traders paid higher fixed rates, dealers said.
“Right now there is no positive for the market going ahead,” a dealer at a private bank said. “Yields will go up this week, albeit slowly, and may even touch the 7.50% mark where there should be some buying interest.”
Traders will keep an eye on India’s GDP growth data for Jan-Mar, scheduled to be released after market hours on Tuesday.
India’s GDP growth is likely to have moderated to 4.1% in the March quarter, according to the median of 22 economists polled by Informist, lower than the 4.8% assumed by the National Statistical Office in its second advance estimate.
During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.33-7.40%. (Shubham Rana)
India Gilts: Down on surge in Brent crude; RBI bond sales weigh
NEW DELHI–0955 IST–Government bonds fell as traders trimmed their holdings, tracking a sharp rise in Brent crude prices over the past two days, with the July contract trading over the $120 per bbl mark.
The Reserve Bank of India was seen having discomfort with prices above that key level, and may move to curb consumer inflation readings remaining above the 6% mark with quicker tightening on monetary policy, starting with the June policy review next week, dealers said.
Moreover, the central bank’s bond sales in open market operations outside auction also drove down appetite for dated securities. Data released after market hours Friday showed the RBI sold 7.50 bln rupees in the week to May 20, the third sale in four weeks, totalling 32.95 bln rupees.
“The RBI’s bond sales push down the confidence of the market a lot, and there’s a lot of speculation which segments it would be cutting from its own books because those will certainly underperform – probably it is the short-end, which is where market demand has reversed,” a dealer at a private bank said.
Short-term bonds fell in line with the 10-year benchmark gilt. The devolvement of 22.36 bln rupees of the 4.56%, 2023 bond on primary dealers at the auction on Friday also weighed on gilts maturing under five years, dealers said.
Investors stepped up purchases in the 6.54%, 2032 bond as the benchmark yield rose above 7.38% in early trade which was a key technical level and considered lucrative by some state-owned banks, dealers said.
Volumes were muted as traders stayed on sidelines due to caution ahead of key data this week. India’s GDP growth for Jan-Mar is scheduled to be released after market hours on Tuesday
India’s GDP growth is likely to have moderated to 4.1% in the March quarter, according to the median of 22 economists polled by Informist, lower than the 4.8% assumed by the National Statistical Office in its second advance estimate.
During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.33-7.40%. (Aaryan Khanna)
India Gilts: Seen down on surge in Brent crude; GDP data Tue eyed
NEW DELHI – Government bonds are seen opening lower tracking a sustained rise in crude oil prices, but traders may stay on sidelines amid lack of significant domestic cues today, dealers said.
Crude prices ended higher on Friday as the peak driving season in the US is about to start this week which is likely to increase demand for fuel in the country.
Oil traders were concerned about tight supply as inventories of petrol and diesel have fallen in the US for the last few weeks. Russian oil supply is also sharply down and is expected to fall further if the European Union moves to ban supplies.
The Brent crude contract for July delivery settled over $2 higher at $119.43 a bbl on Friday, and surged past the key $120 a bbl mark in Asian trade today.
Typically, a rise in crude oil prices increases the risk of imported inflation in India and provides less room for the Reserve Bank of India to prolong its monetary policy accommodation.
Investors may step up purchases as the yield on the 10-year benchmark 6.54%, 2032 bond rises to the psychologically-crucial 7.38% mark, dealers said.
Short-term bonds may inch lower after the RBI devolved 22.36 bln rupees of the 4.56%, 2023 bond on primary dealers at the auction on Friday, which was the first sign of lack of appetite for dated securities brewing in the market, dealers said.
Traders await the release of the GDP data for Jan-Mar as well as the government’s spending figures for 2021-22 (Apr-Mar) and the month of April, all scheduled for release on Tuesday.
India’s GDP growth is likely to have moderated to 4.1% in the March quarter, according to the median of 22 economists polled by Informist.
Traders are also looking ahead to the policy review next week and may avoid large bets, dealers said.
The Monetary Policy Committee is widely expected to raise the policy repo rate by 50 basis points, following up on the off-cycle 40 bps hike enacted by the rate-setting panel earlier this month. Traders may trim their bond holdings heading into the outcome of the meeting on Jun 8, dealers said.
Today, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.33-7.40%, as against 7.35% on Friday. (Aaryan Khanna)
End
US$1 = 77.54 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Avishek Dutta
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