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India Gilts Review: End sharply higher tracking fall in 5-year OIS

Informist, Tuesday, Oct 11, 2022

 

By Aaryan Khanna

 

NEW DELHI – Government bond prices ended sharply higher today, reversing early losses, as the five-year overnight indexed swap rate was off highs, dealers said.

 

Today, the 10-year benchmark 7.26%, 2032 bond closed at 98.84 rupees, or 7.43% yield, as against 98.50 rupees, or 7.48% yield, on Monday.

 

The five-year swap rate ended lower as banks received fixed rates today for a large corporate house. The contract ended at 7.02%, against 7.15% earlier in the day.

 

The large corporate house received fixed rates through banks to mitigate its interest rate risk on a bond issued recently, dealers said. Traders also persistently received fixed rates anticipating further flows, which offset an early rise in the five-year OIS rate.

 

Firm investor demand, likely due to flows from trade by the corporate house, spurred short sellers in gilts to cover their bets in the latter half of the day, dealers said.

 

As prices rose, short sellers covered their bets and were wary of the market showing firm demand despite the coming CPI inflation data, dealers said.

 

"My bet is that the investor buying is the one that led to the short covering, otherwise there aren't any triggers that would lead to such a big gain," a dealer at a state-owned bank said.

 

The market has priced in the coming CPI reading, dealers said. According to a poll of 20 economists by Informist, consumer inflation rose to 7.3% in September from 7% the previous month.

 

However, short sellers covered more bets as crude prices fell. Oil prices tumbled today as the dollar rose against major currencies, while concerns about the health of the global economy continued to pose a challenge to demand.

 

Brent crude for December delivery fell over 2% from Monday's settlement and was at $93.73 a bbl at the end of Indian trading hours today.

 

The late momentum in prices was caused by a sharp covering of intraday short bets near the close. Early in the day, traders had placed short bets, taking cues from an overnight jump in US Treasury yields, dealers said.

 

The yield on the benchmark 10-year US Treasury note rose over 10 bps to 4.00% ahead of US inflation data, due on Thursday. Retail inflation in the US is expected at 8.1% in September.

 

Yields also rose due to hawkish comments by Federal Reserve officials on Monday. Fed Vice Chair Lael Brainard said the full impact of rate hikes on the economy wouldn't be felt for months, while Chicago Fed President Charles Evans said there was a strong consensus in the Fed to raise the policy rate to around 4.5% by March. 

 

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.

 

"Our view was that the market would eventually give up those gains, but it seems that it was short sellers which had to cover," a dealer at a foreign bank said. "The market view is almost completely that yields must rise, because the rate view is not a cause for optimism."

 

According to data on the RBI's Negotiated Dealing System – Order Matching platform, the market-wide turnover stood at 300.90 bln rupees, compared with 226.45 bln rupees on Monday.

 

OUTLOOK

Government bond prices are likely to open steady on Wednesday as traders may stay on the sidelines ahead of crucial CPI data releases.

 

India will announce its inflation data for September on Wednesday, while data for the US will be released on Thursday.

 

India's retail inflation is likely to have risen to a five-month high of 7.3% in September, resulting in failure to meet the RBI's inflation mandate, according to the median of an Informist poll of 20 economists.

 

Any movement in 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 7.44-7.52%.

 

 

Today

Monday

Price

Yield

Price

Yield

7.26%, 2032

 98.8425

 7.4257%

 98.5000

 7.4758%

7.38%, 2027

 99.9300

 7.3939%

 99.7300

 7.4451%

7.10%, 2029

 98.2500

 7.4434%

 98.0500

 7.4829%

7.54%, 2036 100.2500 7.5089% 99.8175 7.5602%
6.54%, 2032 93.9300 7.4568% 93.5800 7.5118%

India Gilts: Up more on short covering as US yields, crude ease

 

 1340 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS
7.26%, 2032
PRICE (rupees)98.7498.7598.1298.1298.50
YTM (%)      7.44077.43927.53167.53167.4758

 

NEW DELHI–1340 IST–Government bond prices rose further, after reversing early losses, as traders covered short bets noting a fall in US Treasury yields and crude oil prices from the day's highs, dealers said.

 

The yield on the 10-year US Treasury note eased to 3.94% from 4.00% earlier, even as fears of sharp interest rate hikes by the US Federal Reserve persisted.

 

Meanwhile, Brent crude for December delivery fell over 1.1% from Monday's settlement and was at $95.13 a bbl in trade today. Typically, a fall in crude oil prices decreases the risk of imported inflation in India and eases pressure on the Reserve Bank of India to tighten monetary policy.

 

"US yields have come down, and so has crude, so there is a bit of covering for short sellers that happened in the morning," a dealer at a primary dealership said. "The corporate receiving in overnight indexed swaps continues to keep the yields in check, at least for today."

 

Gilt prices had erased early losses after traders received fixed rates for a corporate house, leading to the five-year OIS rate falling off highs, dealers said.

 

During the day, the yield on the 7.26%, 2032 bond is seen at 7.41-7.48%. (Aaryan Khanna)


India Gilts: Erase losses as corp receiving pulls down 5-year OIS

 

 1125 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS
7.26%, 2032
PRICE (rupees)98.5098.6298.1298.1298.50
YTM (%)      7.47657.45827.53167.53167.4758

 

NEW DELHI–-1125 IST–Prices of government bonds erased early losses as the five-year overnight indexed swap rate came off the day's highs, dealers said.

 

The five-year swap fell to 7.04% from the day's high of 7.15%, as a large corporate house received fixed rates, likely for a bond issuance due today, dealers said.

 

"A corporate house is receiving fixed rates in OIS to hedge their bond issuance which is keeping the five-year swap from rising too much," a dealer at a private bank said. "With OIS coming down, gilts market is also recovering from the early losses." 

 

The recovery in prices was also supported by a fall in crude oil prices, dealers said. The Brent crude contract for December delivery ended at $96.19 per barrel on Monday against $97.92 per bbl on Friday. Prices fell further today to $95.69 per bbl.

 

Prices fell in early trade tracking a rise in 10-year US Treasury yield to 4.00%, from Friday's close of 3.89%, as investors braced for the US CPI data due on Thursday. Retail inflation in the US is expected at 8.1% in September.

 

Traders avoided placing aggressive bets today on caution ahead of the India CPI data release on Wednesday, where the retail inflation is seen rising to 7.3% in September.

 

During the day, the yield on the 7.26%, 2032 bond is seen at 7.45-7.53%. (Shubham Rana)


India Gilts:Fall noting rise in US ylds; fall in crude limits losses

 

 0945 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS
7.26%, 2032
PRICE (rupees)98.3898.4198.1298.1298.50
YTM (%)      7.49347.48907.53167.53167.4758

 

NEW DELHI–0945 IST–Prices of government bonds fell today tracking a rise in US Treasury yields, but a fall in crude oil prices limited the loss, dealers said.

 

The yield on the benchmark 10-year US Treasury note jumped 11 basis points to 4.00% in Asian trade today, as investors braced for another high US inflation reading on Thursday. Retail inflation in the US is expected at 8.1% in September, marginally down from 8.3% in August, but still sharply high.

 

Brent crude oil prices came down to near $95 per barrel today as concerns over a global economic slowdown offset fears of tight supply. Oil prices were also weighed down as the dollar index hit over a one-week high.

 

"There are many mixed factors right now so don't expect a sharp movement either side," a dealer at a private bank said. "10-year US yield is at 4%, crude has come down, and we also have India and US CPI due this week."

 

Traders avoided placing large bets as they exercised caution ahead of the domestic CPI data, which kept volumes muted, dealers said. India's retail inflation rate based on CPI is expected to rise to a five-month high of 7.3% in September, according to median of an Informist poll of 20 economists.

 

Traders may keep an eye on the movement in rupee during the day, as any sharp depreciation in the currency may prompt fears of sharper rate hikes by the Reserve Bank of India, dealers said.

 

During the day, the yield on the 7.26%, 2032 bond is seen at 7.46-7.55%. (Shubham Rana)


India Gilts: Seen down as 10-year US yld jumps to near 4% before CPI

 

NEW DELHI – Prices of government bonds are seen opening lower today because of a sharp rise in US Treasury yields earlier in the day, dealers said.

 

The yield on the benchmark 10-year US Treasury note jumped 9 basis points in early trade to 3.98% ahead of the US inflation data, due on Thursday. Retail inflation in the US is expected at 8.1% in September.

 

Yields also rose due to hawkish comments by Federal Reserve officials on Monday. Fed Vice Chair Lael Brainard said the full impact of rate hikes on the economy won't be felt for months, while Chicago Fed President Charles Evans said there is a strong consensus in the Fed to raise the policy rate to around 4.5% by March. 

 

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.

 

Losses may be limited as investors are likely to stock up on gilts at yields considered lucrative with the

10-year 7.26%, 2032 bond yield close to 7.50%.

 

Today, the yield on the 7.26%, 2032 bond is seen at 7.46-7.55% as against 7.48% on Monday.

 

Traders may keep to the sidelines on caution ahead of the domestic CPI data, due to be released on Wednesday, dealers said. 

 

According to median of an Informist poll of 20 economists, India's retail inflation rate based on CPI is expected to rise to a five-month high of 7.3% in September. (Shubham Rana)

 

End

 

US$1 = 82.31 rupees

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

 

Edited by Avishek Dutta

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

 

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