Informist, Wednesday, Dec 14, 2022
By Kasthuri Akhil
MUMBAI – Prices of government bonds ended sharply higher today after India’s WPI inflation print for November came in lower than expected, which strengthened expectations of a smaller rate hike by the Reserve Bank of India’s Monetary Policy Committee in February, dealers said.
The 10-year benchmark 7.26%, 2032 bond ended at 100.25 rupees, or 7.22% yield, as against 99.95 rupees or 7.27% yield on Tuesday.
India’s wholesale inflation fell to a 21-month low of 5.85% in November from 8.39% in October, according to data released by the commerce and industry ministry today.
The softer-than-expected WPI print came days after data showed CPI inflation fell to an 11-month low of 5.88% in November. After the inflation prints, the Monetary Policy Committee is widely expected to hike rates by only 25 basis points in February, after 225 bps of cumulative hikes since May, dealers said.
Gilt prices opened higher today after US Treasury yields fell on Tuesday, as the US CPI print for November came in at 7.1% on year, 20 bps lower than expectations in a Reuters poll.
The yield on the benchmark US Treasury note fell 10 basis points to 3.51% on Tuesday. A fall in US Treasury yields widens the rate differential with domestic bonds, making the emerging market asset more attractive to investors.
Traders awaited US Federal Reserve Chair Jerome Powell’s commentary after the Federal Open Market Committee’s rate decision at 0030 IST on Thursday, dealers said.
With inflation in the US cooling in November, traders anticipate softening of the pace of rate hikes by the Fed.
Nearly 80% of Fed funds’ traders expect the panel to raise the policy rate by 50 bps, according to the CME Group’s FedWatch tool. The FOMC has raised rates by 75 bps on four consecutive occasions.
The rate decision and the commentary by Fed officials is expected to have a bearing on the course of rate hikes in the domestic market, dealers said.
Fed Chair Jerome Powell is scheduled to give an address after the outcome of the FOMC’s twoday meeting.
“I expect Fed’s commentary to be hawkish, but whatever their commentary may be, the domestic market will open accordingly tomorrow (Thursday) as a 50-bps-hike has already been priced in,” said a dealer at a private bank.
The yield on the 10-year benchmark bond fell below the key 7.20% mark after the release of the WPI inflation data but rose close to the end of trade.
“Traders booked some profits by the end of trade as they are going light in their positions ahead of FOMC outcome,” a dealer at a state-owned bank said.
According to data on RBI’s Negotiated Dealing System – Order Matching platform, the turnover was 448.85 bln rupees today, compared with 240.80 bln rupees on Tuesday.
Meanwhile, trades aggregating 1.60 bln rupees were settled with the digital rupee pilot in 19 deals, compared with 1.50 bln rupees in 15 deals on Tuesday.
OUTLOOK
On Thursday, government bond prices are seen taking cues from the outcome of the FOMC meeting, due at 0030 IST on Thursday, dealers said.
Traders will also keep an eye on the movement in the US Treasury yields post the outcome of the Fed meet.
Any significant movement un crude oil prices may also lend cues at open.
The yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.17-7.27%.
India Gilts: Surge after Nov WPI falls to 21-mo low, US yields slump
MUMBAI–1355 IST–Government bond prices surged as WPI inflation fell to a 21-month low of 5.85% in November, according to government data released at 1200 IST, dealers said.
India’s wholesale inflation for November was seen at 6.4%, according to an Informist poll.
The print comes on the heels of CPI inflation falling to an 11-month low of 5.88% in November, over 50 basis points lower than consensus estimates.
With price pressures easing, the Reserve Bank of India may not pursue a path of aggressive policy tightening going forward, dealers said. The Monetary Policy Committee is expected to hike rates by only 25 bps in February, after 225 bps of hikes since May.
The print buoyed gilt prices, which had already risen earlier in the day after softer-than-expected US CPI inflation in November led to a slump in US Treasury yields.
The yield on the benchmark US Treasury note fell 10 bps to 3.51% on Tuesday, and was further down to 3.47% today.
“Market was expecting this kind of sharp rise in gilts this morning, but somehow that did not happen because of lack of any sharp movement in the overnight indexed swap rates,” a dealer at a state-owned bank said. “After yesterday’s (Tuesday) US CPI data, market is expected to remain positive throughout the day.”
The lower-than-expected CPI print strengthened traders’ bets on a less aggressive rate hike by the US Federal Reserve, dealers said.
Nearly 80% of Fed funds’ traders expect the panel to raise the policy rate by 50 bps, according to the CME Group’s FedWatch tool. The FOMC has raised rates by 75 bps four straight times.
Traders await Fed Chair Jerome Powell’s commentary after the Federal Open Market Committee’s rate decision at 0030 IST on Thursday, dealers said.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform, market-wide turnover at 1355 IST was 317.00 bln rupees compared with 157.00 bln rupees at 1330 IST on Tuesday.
For the rest of the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.18-7.25%. (Kasthuri Akhil)
India Gilts: Rise as Fed rate view softens, US yields fall post CPI
MUMBAI–0955 IST–Government bond prices rose as traders expect the US Federal Reserve to be less aggressive on tightening policy, dealers said. A slump in US Treasury yields after softer-than-expected US retail inflation for November also aided gilt prices.
The yield on the benchmark US Treasury note fell 10 basis points to 3.51% on Tuesday, after the US CPI print was at 7.1% on year, against the expectations of 7.3%. The US CPI increased 0.1% on month in November, against a 0.4% rise in October.
A fall in US Treasury yields widens the rate differential with domestic bonds, making the emerging market asset more attractive to investors.
Traders await the policy decision by the Federal Open Market Committee at 0030 IST on Thursday, dealers said. Nearly 80% of Fed funds’ traders expect the panel to raise the policy rate by 50 basis points, according to the CME Group’s FedWatch tool.
“Traders are more keen to listen to Powell’s commentary post meeting as it would tell about the future course of rate hikes,” a dealer at a primary dealership said. “Even after better (US) CPI numbers, market largely expect a 50 bps point hike only.”
Fed Chair Jerome Powell is scheduled to give an address after the FOMC meet on Thursday.
However, gains in gilt prices were limited as traders avoided aggressive bets ahead of the Fed’s monetary policy decision, dealers said.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform, market-wide turnover at 0955 IST was 78.65 bln rupees compared with 56.75 bln rupees at 0950 IST on Tuesday.
During the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.22-7.29%. (Nishat Anjum)
India Gilts: Seen up after softer US CPI points to slowing Fed hikes
MUMBAI – Government bond prices are seen opening higher after US CPI inflation was lower than expected in November, raising hope that the US Federal Reserve would slow down the pace of its rate hikes at its policy outcome on Thursday, dealers said.
Today, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.22-7.29% as against 7.27% on Tuesday.
The US CPI increased 0.1% on month in November, after advancing 0.4% in October. The reading was lower than 0.3% seen by Dow Jones. On year, the CPI rose 7.1% against expectations of a 7.3% increase.
The reading comes ahead of the US policy decision at 0030 IST on Thursday, where the Fed’s rate-setting panel is seen hiking the policy rates by 50 basis points at the end of its two-day meet. The Federal Open Market Committee has raised rates by 375 bps this year, including four straight hikes of 75 bps each.
US Treasury yields fell sharply after the release of US November CPI data. The yield on the benchmark US Treasury note fell 10 basis points to 3.51% on Tuesday.
A fall in US Treasury yields widens the rate differential with the domestic bonds, making the emerging market asset more attractive to investors.
On Tuesday, gains were capped as traders remained on sidelines ahead of the US CPI print. Now, that the US CPI is lower than estimated, the domestic gilt prices may rise further, dealers said. India CPI inflation was also lower-than-expected in November and fell into the Reserve Bank of India’s target band of 2-6% for the first time in 11 months, dealers said.
On other hand, investors may avoid adding to their portfolios before the Fed’s monetary policy decision, dealers said. (Nishat Anjum)
End
US$1 = 82.46 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Avishek Dutta
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