Informist, Friday, May 14, 2021

By Suyash Pande

NEW DELHI – The 10-year benchmark 5.85%, 2030 bond ended higher after the Reserve Bank of India rejected all bids for the paper at the auction today, dealers said.

The government raised 122.05 bln rupees as against 260 bln rupees notified at the auction.

This was the third time the RBI rejected all bids for a paper, taking the difference between the amount borrowed and notified by the Centre to 387 bln rupees for this financial year.

The RBI rejected bids for the 10-year benchmark 5.85%, 2030 bond on Apr 16 and today, and for the 5.63%, 2026 bond on Apr 23.

Such auction results have left traders frustrated with the central bank's tight leash over the bond yields as they believe the RBI is controlling both the supply and demand aspects of the market, dealers said.

The central bank controls the supply by rejecting bids at the auction and stimulates demand by conducting market operations such as Operation Twist and outright open market operations, dealers said.

The gilt trading hours were extended till 1700 IST due to the delay in auction result.

"We don't know in India on the day of the auction whether you will have no supply because of rejection or 170 bln rupees of 10-year bond because of greenshoe option. How can a market function like this?," a dealer with a primary dealership said.

"In the US, 10-year bond yield rose till 1.70% and auction demand came there this week but here the RBI is not flexible at all," the dealer said.

The 10-year benchmark 5.85%, 2030 bond closed at 99.02 rupees or 5.99% yield, as against 98.85 rupees or 6.01% on Wednesday. Domestic financial markets were closed on Thursday for Id-ul-Fitr.

Bond prices started the day on a weak note because traders were disappointed with the details of the next round of bond purchases under G-sec acquisition programme.

The central bank will purchase 350 bln rupees worth of bonds on Thursday. Dealers said that most of the papers that the RBI opted for are semi-liquid apart from the 10-year benchmark 5.85%, 2030 bond.

Traders had expected the central bank would opt for on-the-run papers for G-SAP to facilitate the borrowing programme and anchor bond yields. The 6.64%, 2035 bond was the worst-hit paper because traders unwound bets that the paper would be part of the bond purchase on Thursday.

Dealers now believe that secondary market activity will be hit because of the manner in which the central bank was intervening.

"How will traders trade if the RBI gives no supply and they keep taking supply through various operations and impose a level," a dealer with a private bank said.

"We have no idea what do they (RBI) want, the demand was there today and yet they did not give the supply. The secondary market volumes will become even thinner now," the dealer said.

The turnover was 319.45 bln rupees today, as against 247.25 bln rupees on Wednesday, according to data on RBI's Negotiated Dealing System - Order Matching Platform.

OUTLOOK
Government bond prices are seen steady on Monday because traders may move with caution following the auction result today and ahead of the RBI's bond purchase on Thursday.

Dealers do not believe that the 10-year benchmark 5.85%, 2030 bond yield will sustain below 6.0% but they are cautious about placing bets against the paper due to low free float of the paper.

Any sharp movement in crude oil prices and US Treasury yields may lend cues at open.

Yield on the 10-year benchmark 5.85%, 2030 bond is seen in a band of 5.97-6.02%.

India Gilts: In thin band; 260-bln-rupee auction results in focus

NEW DELHI -1405 IST--Government bonds moved in a thin band with market participants waiting for the result of the 260-bln-rupee auction, dealers said.

The government auctioned 30 bln rupees of the new 2023 bond, 140 bln rupees of the 5.85%, 2030 bond, and 90 bln rupees of the 6.76%, 2061 bond.

A poll by Infomist pegged the cutoff price for the 10-year benchmark 5.85%, 2030 bond at 98.60 rupees and the coupon for the new 2023 bond at 4.31%.

"The auction should go through because there will be demand for the 10-year bond at 6.05% yield and people would like to hold the paper till the G-SAP execution is done on Thursday," a dealer with a primary dealership said. 

Bond prices fell earlier today because market participants were disappointed with the Reserve Bank of India's choice of papers for the next round of purchases under G-Sec secondary market acquisition programme. The details were announced on Wednesday for the purchases to be made on May 20.

The central bank chose semi-liquid papers for its purchases whereas some traders had bet that the central bank would include papers that are part of the auctions these days to facilitate the passage of auctions going forward.

"We have seen in last two weeks that auction activity becomes muted in next few days after the result and only picks up on days of the auction. This is expected to continue after today as well. Post the result, the focus will shift to G-SAP which is scheduled for Thursday," the dealer said.

Yield on the 10-year benchmark 5.85%, 2030 bond is seen in a band of 6.00-6.05%% for rest of the day. (Suyash Pande)

India Gilts:Dn on RBI's choice of papers for G-SAP buy; debt sale eyed

NEW DELHI--1025 IST--Government bond prices fell as traders were disappointed with the papers that Reserve Bank of India chose for purchase under the G-sec secondary market acquisition programme, scheduled for May 20.

The central bank will purchase the 6.18%, 2024 bond; the 7.59%, 2026 bond; the 6.79%, 2027 bond; the 7.17%, 2028 bond; the 5.85%, 2030 bond; the 7.95%, 2032 bond and the 6.22%, 2035 bond through an open market operation auction. 

Traders had hoped that the central bank may opt for on-the-run papers such as the 5.63%, 2026 bond and 6.64%, 2035 bond apart from the 10-year benchmark 5.85%, 2030 bond to included in its gilts purchase, dealers said.

The 6.64%, 2035 bond was the worst hit as traders had stepped up purchases of the paper ahead of the announcement of dated securities that RBI may buy under the G-sec secondary market acquisition programme. 

"There is a disappointment among traders largely as they had bought on-the-run papers ahead of the announcement on view that these papers (such as the 5.63%, 2026 bond and 6.64%, 2035 bond) will be included, so now they are reducing their holdings of the bonds," a dealer with a private bank said.

Apart from that, globally, yields have risen and higher inflation in the US has strengthened the case for reflation trade to pick up, there is a sense that US yields may rise more in the coming days, the dealer added. 

A rise in US Treasury yields on Wednesday also weighed on bond prices today. The yields jumped as the CPI inflation in April rose at its fastest pace since 2008. The CPI inflation in April soared to 4.2% compared with 2.6% the previous month, data released on Wednesday showed.   

Yield on the 10-year US Treasury note had risen by five basis points to settle at 1.69% on Wednesday before retracting to 1.66% on Thursday. The yield was last at 1.65%.

A rise in US Treasury yields typically prompts foreign portfolio investors to unwind their purchases of higher-yielding fixed-income assets in emerging markets such as India. 

However, the fall in prices of the 5.85%, 2030 bond was limited due to caution ahead of the 260-bln-rupee weekly debt sale and as the paper was included in the RBI's gilts purchase plan, dealers said. Participants said that the price of the bond may also fall sharply following the conclusion of today's auction. 

Yield on the 10-year benchmark 5.85%, 2030 bond is seen at 6.00-6.05% during the day.  (Vaibhav Chakraborty)

India Gilts: Most bonds seen down on RBI's choice of paper for G-SAP

NEW DELHI – Most government bond prices may open lower today due to the choice of papers the Reserve Bank of India opted in its gilts purchase under the G-sec secondary market acquisition programme, scheduled for May 20.

However, the 10-year benchmark 5.85%, 2030 bond may find support as the paper was included in the RBI's gilts purchase plan.

After market hours on Wednesday, the RBI said it will purchase seven gilts worth 350 bln rupees. However, apart from the 5.85%, 2030 bond, the other bonds announced in the gilts purchase were off-the-run or illiquid bonds. This disappointed traders as most of them expected the central bank to opt for on-the-run papers.

The central bank will purchase the 6.18%, 2024 bond; the 7.59%, 2026 bond; the 6.79%, 2027 bond; the 7.17%, 2028 bond; the 5.85%, 2030 bond; the 7.95%, 2032 bond and the 6.22%, 2035 bond through an open market operation auction. 

A rise in the US Treasury yields is also expected to weigh on bond prices today as the CPI inflation rose its fastest pace since 2008. The CPI inflation in April soared to 4.2% compared with 2.6% the previous month, data released on Wednesday showed.   

Yield on the 10-year US Treasury note had risen by five basis points to settle at 1.69% on Wednesday before retracting to 1.66% on Thursday. The yield was last at 1.65%. A rise in US Treasury yields typically prompts foreign portfolio investors to unwind their purchases of higher-yielding fixed-income assets in emerging markets such as India. 

Domestic financial markets were closed on Thursday on account of Ramzan-Id.

Prices of bonds up for auction today may remain in a narrow range until the result of the 260-bln-rupee weekly debt is not announced. The government will borrow 30 bln rupees through the auction of the new 2023 bond, 140 bln rupees through the auction of 5.85%, 2030 bond, and 90 bln rupees through the auction of the 6.76%, 2061 bond.

The yield on the 10-year benchmark 5.85%, 2030 bond is seen in a band of 5.98-6.04%, against 6.01% on Wednesday. (Vaibhav Chakraborty)

End

US$1 = 73.28 rupees 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Akul Nishant Akhoury

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