Informist, Tuesday, Nov 16, 2021

By Vaibhav Chakraborty

NEW DELHI – Government bonds ended lower today tracking an overnight rise in US Treasury yields, as concerns over the near-term trajectory of interest rates amid global inflation weighed on appetite for haven assets, dealers said.

Since US CPI inflation was detailed last week, the view about a faster-than-expected tapering of asset purchases by the US Federal Reserve and consequent earlier-than-expected rate hikes have intensified globally, dealers said.

CPI inflation in US rose to a three-decade high of 6.2% in October.

Investors believe rising inflation and elevated crude oil prices could prompt the Fed to increase the tapering of its asset purchases from the $15 bln announced at the policy meet last month, dealers said.

The pace of asset purchase tapering is being judged as the metric for markets to assess when the world's leading economy could begin to hike interest rates, dealers said.

According to the CME FedWatch Tool, the number of investors expecting at least a single rate hike in June has increased to nearly 70% compared to 50% earlier, while the expectation of three or more hikes within 2022 has increased significantly post the CPI inflation number.

"Right now things are very much being driven by global view on interest rates and there aren't many positives for the market. So any move in US Treasury yields has a far greater impact than a few months ago because back then we had RBI which was there to cap an incremental rise," said a dealer with a primary dealership.

The 10-year benchmark 6.10%, 2031 bond ended at 98.11 rupees or 6.36% yield against the closing level of 98.26 rupees and 6.34% on Monday.

Despite a benign CPI inflation print for October in India, market believes that the overall sentiment remains weak amidst the uncertainty over interest rates and lack of supportive measures from the RBI in the form of open market operations, dealers said.

Since the last of gilt purchases under the government security acquisition programme back in September, the Reserve Bank of India has halted the gilt buy programme and refrained from resorting to one-off open market operations to signal its support to the market, dealers said.

"The way borrowing has been managed over the last one and a half year has been mostly because market knew the RBI was there and there were regular communications, but since the policy we have hardly seen any communication from their end, which is why the market is sort of left in a hang," the dealer added.

Towards the last stretch of the day's trading, bond prices fell further after Informist exclusively reported quoting a senior finance ministry source that the inclusion of Indian government bonds in global indices is unlikely in the current financial year ending in March as the tax changes required for implementing the plan are likely only in the Budget for 2022-23.

Before the inclusion of government bonds in global bond indices, it is important to start settlement of Indian bond trades on international platforms like Euroclear, the official said.

The anticipation of Indian bonds getting listed in global bond indices has been one of the few positives for the market amid global uncertainty, but the delay could weigh on sentiment further, dealers said.

According to data on RBI's Negotiated Dealing System – Order Matching Platform, the market-wide turnover today was 144.25 bln rupees, against 184.95 bln rupees on Monday.

OUTLOOK

Bonds may open lower on Wednesday after Informist exclusively reported that inclusion of Indian government bonds in global indices is unlikely in the current financial year as the tax changes required for implementing the plan are likely only in the Budget for 2022-23.

Moreover, uncertainty over global interest rates amid rising inflation could also weigh on bonds.

Any sharp movement in US Treasury yields and crude oil prices may guide domestic bonds early in trade.

The yield on the 10-year benchmark 6.10%, 2031 bond is seen at 6.31-6.37%.

India Gilts: Stay down on rise in US yields, Fed rate view

NEW DELHI--1440 IST--Government bonds remained down following an overnight rise in US Treasury yields as concerns over the near-term view on US Federal Reserve's interest rates continued to weigh on investor appetite, dealers said.

Yield on the 10-year benchmark US Treasury note moved up 17 basis points after CPI inflation print rose to 6.2% from a year ago, a near 31-year high, which led investors to believe that the Fed could act on interest rates at a faster-than-expected pace to tame the rising inflation, dealers said.

"Global headwinds continue to be the relying theme for bond markets everywhere. Right now it is very important to track US yields as they hold the key for interest rate view, which is why ever since their (US) inflation was out, there are growing number of people who have shifted to rate hike camp," said a dealer with a private bank. "The buying we saw yesterday was not going to sustain anyway, as the underlying sentiment is weak," the dealer added.

Even though the CPI inflation in India hovers around the Reserve Bank of India's medium-target of 4%, traders believe that global headwinds continue to dominate the domestic gilt market, dealers said.

According to them, in the event of a faster-than-expected tapering of asset purchases by the US Fed and consequent rate hikes, global bond yields could surge significantly and Indian bond yields would move correspondingly.

For the rest of the day, yield on the 10-year benchmark 6.10%, 2031 bond is seen at 6.34-6.38%.  (Vaibhav Chakraborty)

India Gilts: Down on rise in US yields, crude prices; sentiment weak

NEW DELHI--1030 IST--Government bonds fell tracking an overnight rise in US Treasury yields and a sharp rise in crude oil prices in Asian trade today, dealers said.

US Treasury yields shot up to close in on 52-week highs after a three-decade high CPI inflation print last week raised fears of the Federal Reserve hiking rates quicker than expected. Some investors now expect the US central bank to raise rates twice in 2022.

Meanwhile, Brent crude oil futures for January rose close to the psychologically-crucial $83-per-bbl mark in Asian trade after ending a tad down on Monday, as expectations of additional supply from the US government receded.

"Global cues have been volatile and the domestic market has just been following that, because overnight indexed swap rates have been actively tracking the cyclic rise and fall as well which will spill over to gilts pretty quickly," a dealer at a private bank said.

Traders also preferred to sell on gains on the view that Reserve Bank of India seems comfortable with the rise in gilt yields, dealers said. Since the conclusion of its gilt purchases under the Government Security Acquisition Programme in September, the central bank has refrained from announcing open market operations to check the rise in yields.

Losses were somewhat limited by a benign outlook on domestic inflation after the CPI inflation print for October was within the RBI's 2-6% comfort band, and recent cuts to excise duty on fuel by the Centre, dealers said.

Yield on the 10-year benchmark 6.10%, 2031 bond is seen at 6.32-6.38% today.  (Aaryan Khanna)

India Gilts: Seen down on rise in US yields, crude oil prices

NEW DELHI – Government bonds are seen opening lower due to an overnight jump in US Treasury yields, as well as a reversal of easing crude oil prices in early Asian trade.

US Treasury yields continued their climb on Monday after consumer inflation hit a near 31-year high in October, as per data released last week. Elevated core inflation was a concern for global investors as well.

Some investors placed bets anticipating quicker-than-expected rate hikes by the Federal Reserve after the CPI print, with some tenures of US yields approaching 52-week highs.

The yield on the 10-year Treasury note rose 5 basis points to 1.63% on Monday, and was steady in Asian trade today. 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 for foreign investors.

Meanwhile, crude oil prices rebounded as fears of extra supply ebbed. Earlier this week, investors were worried that the US may release crude from its strategic reserves to cool down higher fuel prices in the country. 

The Brent crude oil futures contract for January delivery inched down on Monday, but rose 80 cents to $82.85 per bbl in Asian trade today. Typically, a rise in crude oil prices increases upside risks to inflation in India and provides less room for the RBI to prolong its monetary policy accommodation.

Losses may be limited by a benign outlook on domestic inflation after the CPI inflation print for October was within the Reserve Bank of India's 2-6% comfort band, despite India's crude basket remaining above the $80-per-bbl mark for much of the month. The government's slashing of excise duty on fuels earlier this month was also seen moderating price pressures in the near term.

Further, dealers were of the view that the yield on the 10-year benchmark 6.10%, 2031 gilt would fluctuate within the 6.30-6.40% band on the daily movement in global cues. Demand for gilts, particularly those of longer maturities, was seen weak due to the lack of the government securities acquisition programme by the Reserve Bank of India since October.

Yield on the 10-year benchmark 6.10%, 2031 bond is seen at 6.33-6.39% today.  (Aaryan Khanna)

End

US$1 = 74.37 rupees

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

Edited by Ashish Shirke

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