Informist, Tuesday, Dec 6, 2022
By Anjali
NEW DELHI – Prices of government bonds fell as the five-year overnight swap rate rose tracking an overnight surge in US Treasury yields, dealers said.
The 10-year benchmark 7.26%, 2032 bond ended at 100.06 rupees, or 7.25 yield, as against 100.22 rupees or 7.23% yield on Monday.
The five-year OIS rate rose to 6.30% from 6.26% on Monday, and touched a high of 6.33% earlier in the day.
US Treasury yields rose on Monday after the release of service sector activity and factory output data, which indicated a recovery in the US economy. This raised fears that interest rates would remain high for a long time.
The benchmark 10-year US Treasury yield rose to 3.58%, up 6 basis points from the end of the Indian market hours on Monday. A rise in US Treasury yields narrows the interest rate differential between the safe-haven asset and emerging market debt, making the former more appealing to foreign investors.
The depreciation of the rupee against the dollar further weighed on gilt prices, dealers said. The rupee ended at 82.62 per dollar today, a one-month closing low.
“The Indian currency has depreciated by 1 rupee in the last few days, which has also triggered selling (in government bonds),” a dealer at a state-owned bank said.
Traders also remained cautious ahead of the Reserve Bank of India’s Monetary Policy Committee’s meeting outcome on Wednesday, dealers said.
According to an Informist poll of 30 respondents, comprising banks, mutual funds and rating agencies, a majority of analysts expect the RBI’s rate-setting panel to hike the repo rate by 35 basis points.
The market has factored a 35-bps rate hike, which shows a slow-down in the rate hikes by Monetary Policy Committee after three consecutive hikes of 50-bps each. The rate-setting panel has raised rates by 190 bps since May.
Traders are also keenly await the commentary from RBI Governor Shaktikanta Das when he speaks at 1000 IST on Wednesday.
Most dealers expect the Monetary Policy Committee to begin signalling the end of the current rate hike cycle in its statement. The RBI governor may also indicate that the worst of the policy tightening had already passed, dealers said.
However, some sections of the market did not rule out a 50 bps rate hike, which led short sellers to place fresh bets, dealers said.
Traders trimmed their portfolios before the expected rate hike, trying to limit their interest rate exposure. On the other hand, mutual funds were keen on stocking up gilts as prices fell, dealers said.
An overnight fall in crude oil prices failed to impact bond prices during the day ahead of the impending rate decision, dealers said.
“Traders are avoiding any strong position ahead of the Monetary Policy Committee meeting outcome,” a dealer at a different state-owned bank said.
Traders also made space for the fresh supply of the benchmark 2032 paper at the gilt auction on Friday, which further weighed on the prices, dealers said.
The central government will sell 70 bln rupees of the 7.38%, 2027 bond, 120 bln rupees of the 7.26%, 2032 bond, and 90 bln rupees of the 7.36%, 2052 bond on Friday.
According to data on RBI’s Negotiated Dealing System – Order Matching platform, the market wide turnover was 286.80 bln rupees, compared with 261.90 bln rupees on Monday.
Meanwhile, trades aggregating 800 mln rupees were settled with the digital rupee pilot in 10 deals, compared with 600 mln rupees in eight deals on Monday.
OUTLOOK
Government bond prices are seen opening steady on Wednesday as traders may be cautious ahead of the RBI’s Monetary Policy Committee meeting outcome.
The movement during the day will be dictated by RBI Governor Shaktikanta Das’ announcements at 1000 IST, dealers said.
Any significant movement in the US Treasury yields and crude oil prices may also lend cues at open.
The yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.21-7.29%.
India Gilts: Down more as US yields jump, MPC meet outcome awaited
MUMBAI–1305 IST–Prices of government bonds fell more as US Treasury yields rose intraday and as overnight indexed swap rates touched the day’s highs, dealers said.
The five-year OIS rate rose to 6.33% from 6.26% on Monday. The one-year OIS rate was at 6.66% as against Monday’s close of 6.61%.
The benchmark 10-year US Treasury yield rose by 8 basis points from 3.52% at Indian closing time on Monday. US Treasury yields surged on Monday after the release of service sector activity and factory output data, which indicated US economy’s recovery. This raised fears that interest rates would remain high for a long time.
Traders also avoided placing aggressive bets on caution ahead of the Reserve Bank of India’s Monetary Policy Committee meeting outcome on Wednesday, dealers said. The market expects a 35-bps hike by the rate-setting panel.
“Traders are going light into the MPC outcome, which is weighing down on gilt prices,” a dealer at a state-owned bank said. “Even though the market has already discounted a 25- to 35-bps move, more bets are on a 35-bps (hike). If there is a 25-bps rate hike tomorrow (Wednesday), it would bring the yields down to 7.10-7.12%.”
Traders also trimmed their bond holdings to make room for the fresh supply of the benchmark 2032 paper at the gilt auction on Friday, which further pushed gilt prices lower, dealers said.
Meanwhile, demand at the state loan auction today was seen firm, as the supply size was small, dealers said. Five states looked to raise 92.50 bln rupees through the sale of dated securities.
According to data on the RBI’s Negotiated Dealing System – Order Matching platform, the market-wide turnover at 1230 IST was at 161.05 bln rupees compared with 108.70 bln rupees at 1230 IST on Monday.
During the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.20-7.28%. (Kasthuri Akhil)
India Gilts: Fall as US yields rise; all eyes on MPC meet outcome
MUMBAI/NEW DELHI-–0950 IST–Prices of government bonds fell as US Treasury yields rose on Monday. However, traders avoided placing large bets on caution ahead of the Reserve Bank of India’s Monetary Policy Committee meeting outcome on Wednesday, dealers said.
“If US yields rise by 8-9 bps, then our market will have to react, even if it is minimal,” a dealer at a state-owned bank said. “There is no concrete view in the domestic market before policy since a 35-bps hike is already discounted. The market will now take cues from what the governor says tomorrow (Wednesday).”
According to an Informist poll of 30 respondents, comprising banks, mutual funds and rating agencies, a majority of analysts expect the RBI’s rate-setting panel to hike the repo rate by 35 basis points.
RBI Governor Shaktikanta Das’ statement is also keenly awaited as it will guide the market on the path of future rate hikes, dealers said. Das will deliver the statement at 1000 IST on Wednesday.
Meanwhile, US Treasury yields surged on Monday as investors absorbed fresh data pointing to signs of strength in the US economy. The data raised fears that interest rates will remain high for a longer time.
The benchmark 10-year US Treasury yield was at 3.58% in Asian trade today compared with 3.52% on Monday at the Indian market’s closing time.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform, the market-wide turnover at 0950 IST was 53.00 bln rupees compared with 37.65 bln rupees at 0955 IST on Monday.
During the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.20-7.27%. (Anjali and Nishat Anjum)
India Gilts: Seen up on fall in crude, MPC meet outcome eyed
MUMBAI/NEW DELHI – Prices of government bonds are seen opening higher, tracking the overnight fall in crude oil prices, dealers said.
Today, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.18-7.25% as against 7.23% on Monday.
However, gains are likely to be limited as traders might exercise caution ahead of the outcome of the Reserve Bank of India’s Monetary Policy Committee Meeting, dealers said.
The three-day meeting of the committee began on Monday, and its outcome will be announced on Wednesday.
Traders expect a repo rate hike of at least 35 basis points on Wednesday, signalling a slowdown in the pace of the RBI’s rate hikes, after three 50-bps hikes in a row. The RBI’s Monetary Policy Committee has raised rates by 190 bps since May.
Apart from the rate hike decision, traders also keenly await the commentary from RBI Governor Shaktikanta Das at the outcome of the meeting. Some traders are of the view that the committee might slow down the rate hikes, while some expect a pause.
The gains in gilt prices are likely to be limited by a rise in the US Treasury yield, dealers said.
The benchmark 10-year US Treasury yield is at 3.58% in Asian trade as compared with 3.52% on Monday at the Indian market closing hour. (Anjali and Nishat Anjum)
End
US$1 = 82.62 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Maheswaran Parameswaran
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