Informist, Thursday, Mar 2, 2023
By Kasthuri Akhil and Nishat Anjum
MUMBAI – Prices of government bonds ended off lows as traders stepped up purchases of the 10-year benchmark 2032 bond at psychologically-crucial yield levels that are considered lucrative, dealers said. A fall in overnight indexed swap rate contributed to the recovery in prices. However, prices remained down as US Treasury yields rose above the psychologically-crucial 4% mark, dealers said.
The 10-year benchmark 7.26%, 2032 bond ended at 98.80 rupees, or 7.44% yield, against the previous close of 98.94 rupees, or 7.42% yield. The 7.26%, 2033 bond ended at 98.90 rupees, or 7.42%, against the previous close of 99.06 rupees, or 7.39%.
“7.46% level (yield on the 2032 bond) does not seem to break, prices have been bouncing back from levels around 98.62-98.65 rupees which helps sustain the technical level of 7.45-7.46%,” a dealer at a state-owned bank said. “There is no negative sentiment right now domestically which is why 7.46% has not been broken yet.”
Moreover, fall in overnight indexed swap rates aided the recovery in gilt prices. The five-year swap rate fell to 6.65% from the day’s high of 6.72%. Dealers speculated that a corporate house received fixed rate in the swap market, tracking which the gilts market recovered losses.
Even though the spread between the five-year 2027 bond and 10-year 2032 bond narrowed, traders seemed more interested in stocking up on the 10-year benchmark 2032 bond owing to the prevailing uncertainty in the monetary policy action, especially by the US Federal Reserve, dealers said.
“Even though 25 basis-point rate hike by Fed is priced in, but it is expected to raise rates by 75 bps in 2023. So market will continue to stay cautious causing short term bonds to underperform,” a dealer at a primary dealership said.
Despite an increase in US Treasury yields, the 7.26%, 2032 bond did not rise above the yield level of 7.46%. Lack of fresh supply kept the 10-year benchmark bond’s yield below the psychologically-crucial mark of 7.46%. The last gilt auction for the current financial year ending Mar 31 was held on Friday. The yield on the 10-year benchmark US Treasury note rose to 4.00% on Wednesday from 3.92% on Tuesday.
The overnight rise in US Treasury yields reflected fears of more rate hikes by the Fed’s rate-setting panel. Yields rose as the Institute for Supply Management’s survey showed that prices for raw materials increased last month in the world’s largest economy. Comments from Minneapolis US Federal Reserve President Neel Kashkari also boosted US Treasury yields. Kashkari said on Wednesday that he is open to the possibility of a larger interest rate increase at the Fed’s March policy meeting.
With the strength in recent economic data and persistently high inflation in the US, the Fed is seen opting for a cumulative 75 bps rate hikes going forward.
According to the CME Group’s FedWatch tool, 69% of Fed funds traders see the Federal Open Market Committee hiking rates by 25 bps at its March policy meeting, while the rest expect a 50-bps increase. So far, the Fed’s rate-setting panel has raised the policy rate by 450 bps over eight meetings, taking the federal funds rate target to 4.50-4.75%.
According to data on the RBI’s Negotiated Dealing System-Order Matching platform, the turnover was 259.10 bln rupees, compared with 250.85 bln rupees on Wednesday. Trades aggregating 250 mln rupees were settled with the digital rupee pilot in five deals today as compared to 300 mln rupees settled in six deals on Wednesday.
OUTLOOK
On Friday, bond prices are seen opening steady due to lack of significant domestic cues, dealers said.
Traders may also take cues from overnight movement in US Treasury yields and crude oil prices.
The yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.40-7.48%.
India Gilts: Off lows as OIS rates fall; rise in US yields weighs
MUMBAI–1500 IST—-Prices of government bonds came off lows tracking a fall in overnight indexed swap rates, dealers said. However, prices remained down due to a rise in US Treasury bond yields.
The five-year swap rate fell to 6.66% from the day’s high of 6.72%. Some dealers speculated that a corporate house was receiving fixed rates in the OIS market to protect its underlying liability and interest rate payments on its recent debt issuance.
Despite the rise in US Treasury yields, traders stepped up purchases of domestic bonds at levels considered lucrative for the 10-year benchmark 2032 bond, dealers said. “There is genuine demand from all participants at 7.45-7.46% yield levels (on the 7.26%, 2032 bond), the same thing had happened yesterday (Wednesday) as well,” a dealer at a private bank said. “OIS is falling too as people are booking profits there.”
The yield on the benchmark 10-year US Treasury note topped the psychologically crucial 4% mark and rose to 4.01% on Wednesday from 3.92% on Tuesday due to fears that the Federal Reserve will undertake more rate hikes going ahead.
According to data on the RBI’s Negotiated Dealing System–Order Matching platform, marketwide turnover was 182.60 bln rupees at 1500 IST, compared with 115.30 bln rupees at 1500 IST on Wednesday.
For the rest of the day, yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.41-7.48%. (Kasthuri Akhil)
India Gilts: Dn on surge in US Treasury ylds, lack of firm local cues
NEW DELHI–1215 IST–Government bond prices remained sharply down as yield on the benchmark 10-year US Treasury note crossed the psychologically crucial level of 4%, dealers said. US Treasury yields rose due to fears of higher interest rates in the world’s largest economy.
Yield on the benchmark 10-year US Treasury note rose to 4.01% on Wednesday, against Tuesday’s close of 3.92%. The yield further inched up to 4.03% during the day.
On the domestic front, there are no significant cues in the market, hence gilts have been tracking overseas cues. Possibility of a rate hike in April has already been priced in and there are fewer chances of positive surprises during the month, dealers said. These supported the 7.45% yield level on the benchmark 7.26%, 2032 bond on Wednesday.
A majority of analysts expect the Reserve Bank of India’s Monetary Policy Committee to hike the repo rate by another 25 basis points to 6.75% in early April, on top of the 250-bps of rate increases already effected since May.
“The 7.45% level was supported yesterday (Wednesday), but now that US yields have crossed 4% mark, I do not see it being sustained for long,” a dealer at a state-owned bank said. “Domestically, we have nothing to look at except the borrowing calendar.”
The government’s initial allocation of supply for its record 15.43-trln-rupee gross borrowing programme across different segments is expected to lend signifiant domestic cues to the market. Typically, the government front loads its annual borrowing in Apr-Sep to free up space for state borrowing in the second half.
Moreover, short-selling of bonds in order to get higher returns is out of the picture for now as the government borrowing programme for 2022-23(Apr-Mar) ended on Feb 24, with the last gilts auction. Short sellers generally cover their bets at the weekly auctions.
According to data on the Reserve Bank of India’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 84.95 bln rupees at 1215 IST, compared with 47.15 bln rupees at the same time on Wednesday.
During the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.42-7.48%. (Anjali)
India Gilts: Slump as US ylds surge past key 4% mark on rate hike fear
MUMBAI–0930 IST–Government bond prices were sharply lower today, as yield on the benchmark 10-year US Treasury note crossed the psychologically crucial level of 4%, dealers said. US Treasury yields rose due to fears of higher interest rates in the world’s largest economy.
“We already opened around 3 basis points higher (on the 7.26%, 2032 bond), as it was tracking the US Treasury yields,” a dealer at a private bank said. “Now that there is no gilt auction this month, it is difficult to put that kind of pressure to break the 7.46% mark (on the 10-year bond).”
Yield on the benchmark 10-year US Treasury note rose to 4.01% on Wednesday, against Tuesday’s close of 3.92%. The yield further inched up to 4.03% during early Asian trade today.
US Treasury yields rose after the Institute for Supply Management’s survey showed that manufacturing contracted in February and prices for raw materials increased last month in the world’s largest economy. Comments from Minneapolis US Federal Reserve President Neel Kashkari also boosted US Treasury yields. Kashkari said on Wednesday that he is open to the possibility of a larger interest rate increase at the Fed’s March policy meeting.
According to the CME Group’s FedWatch tool, 69.4% of Fed funds traders see the Federal Open Market Committee hiking rates by 25 bps at its March policy review meeting, while the rest expect a 50-bps hike. So far, the US Federal Reserve’s rate-setting panel has raised the policy rate by 450 bps over eight meetings, taking the federal funds rate target to 4.50-4.75%.
Meanwhile, there are no significant domestic cues in the market, dealers said. This has been the case for the last few trading sessions since Friday’s gilt auction, the last one for the financial year ending March.
According to data on the Reserve Bank of India’s Negotiated Dealing System–Order Matching platform–the market-wide turnover was 31.60 bln rupees at 093 IST, compared with 12.90 bln rupees at 0930 IST on Wednesday.
During the day, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.42-7.48%. (Nishat Anjum)
India Gilts: Seen opening down tracking rise in US yields
MUMBAI – Prices of government bonds are seen opening lower, tracking an overnight rise in US Treasury yields, dealers said. US Treasury yields rose after the Institute for Supply Management’s survey showed that manufacturing contracted in February and prices for raw materials increased last month in the world’s largest economy.
Today, the yield on the 10-year benchmark 7.26%, 2032 bond is seen at 7.38-7.48% as against 7.42% on Wednesday.
The data from Institute for Supply Management showed that manufacturing remained in contraction during February as production and new orders slowed. The manufacturing index registered a 47.7% reading, depicting the percentage of companies reporting an expansion. A reading below 50% represents contraction. Economists had been looking for a headline reading of 47.8%, according to a Dow Jones survey.
Yield on the benchmark 10-year US Treasury note rose to 4.01% on Wednesday, against Tuesday’s close of 3.92%. A rise in US Treasury yields narrows the interest rate differential between the safe-haven asset and emerging market debt, making the latter less appealing to foreign investors.
Yield on the benchmark 10-year US Treasury note touched 4% for the first time in over two months as traders digested the economic data and assessed the outlook for US Federal Reserve policy.
According to the CME Group’s FedWatch tool, 69.4% of Fed funds traders see the Federal Open Market Committee hiking rates by 25 basis points at its March policy review meeting, while the rest expect a 50-bps hike. So far, the US Federal Reserve’s rate-setting panel has raised the policy rate by 450 bps over eight meetings, taking the federal funds rate target to 4.50-4.75%.
Moreover, Minneapolis US Fed President Neel Kashkari said on Wednesday that he is open to the possibility of a larger interest rate increase at the March policy meeting, but has not made up his mind whether it will be a 25 or 50 bps rate hike. (Nishat Anjum)
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Aditya Sakorkar
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