Informist, Monday, Oct 9, 2023

By Nishat Anjum

MUMBAI – Prices of government bonds slumped as traders sold their bond holdings on expectations of a notification of open market operation sales after the market hours today, dealers said. The 10-year benchmark 7.18%, 2033 bond closed at 98.60 rupees, or 7.38% yield, against 98.98 rupees, or 7.34% yield, on Friday. 

The Reserve Bank of India on Friday said it may conduct OMO sales to manage liquidity. This weighed on the market sentiment as traders worried about the supply pressures in Oct-Mar, dealers said.

"After the sell-off on Friday it was clear that the market needed further communication. Today's the window where they can actually announce if they want to sell this week," a dealer at a private bank said. "From now, quantum and timeline will play major role to move the market."

The market remained divided on the timeline of the OMO sales by the central bank, dealers said. A section of the market expected the calendar to be released today as liquidity was in a surplus for the first time since Sep 18.

Moreover, if the central bank aims to conduct an OMO sale this month, now would be an ideal time as liquidity might slip into deficit, when outflows of goods and service tax start in the second half of the month, dealers said.

Others, however, did not expect a notification from the RBI today, as liquidity conditions are still seen tight despite being in surplus, dealers said. Some traders also expect the central bank to wait for a few weeks and assess the liquidity condition closer to the festival season, and then conduct the operation accordingly.

At the start of trade today, liquidity in the banking system was estimated to be in a surplus of 90.71 bln rupees, against a deficit of 340.61 bln rupees on Friday.

During the day, apart from the uncertainties around OMO sales, the market lacked any significant domestic cues, which kept the volumes dull in the first half of the trade, dealers said. They speculated that state-owned banks were on the buying side, while primary dealerships were selling.

A rise in US Treasury yields also weighed on domestic bonds, dealers said. The yield on the benchmark 10-year US Treasury note was at 4.80% today, compared with 4.74% at the time of Indian market close on Friday. 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.

After Indian market hours on Friday, US government data showed that the economy added 336,000 jobs in September as against the expectation of 170,000, according to a Dow Jones poll. The unemployment rate remained steady at 3.8%, tempering the jump in US Treasury yields.

The reading did not have much impact on traders' rate hike expectations for the US Federal Open Market Committee's next meeting in November, with only 20% of Fed funds rate traders expecting an increase in the policy rate, according to the CME Group's Fedwatch tool.

"The US market was closed today, so we moved in a thin band during most of the day. But I think, there is an upside bias to US yields, given the data there also shows a robust labour market," a dealer at a state-owned bank said. 

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the turnover today was 355.25 bln rupees, compared with 693.70 bln rupees on Friday. There were no trades in the rupee pilot today.

OUTLOOK

On Tuesday, prices of government bonds may open steady as traders may avoid aggressive bets on lack of firm domestic cues, dealers said.

A sharp move in US Treasury yields and crude oil prices could also be a trigger for gilt prices at open.

The yield on the 10-year benchmark 7.18%, 2033 bond is seen in a range of 7.28-7.37%.

India Gilts: Slump on fear of OMO sale notice after market hours

MUMBAI–-1602 IST--Prices of government bonds fell sharply as traders made space in their portfolios on the expectation of a notification for open market operation sales from the Reserve Bank of India, dealers said. Bond trade volumes were low as the market awaited clarity on OMO sales.

The RBI on Friday said it may conduct OMO sales to manage liquidity. This dampened market sentiment as traders worried about the supply pressures in Oct-Mar, dealers said.

"The market will not be fine till there is some clarity on OMO sales," said a dealer at a primary dealership. "Those who had bought heavily are cutting their positions in case there is any announcement. Stop-losses would have been triggered too."

A section of the market expects the calendar to be released today after market hours as liquidity was in surplus for the first time since Sep 18. Moreover, if the central bank aims to conduct an OMO sale this month, now would be an ideal time as liquidity might slip into deficit when goods and service tax outflows start in the second half of the month, dealers said.

Others, however, do not expect a notification from the RBI today, as liquidity conditions are still seen as tight despite being in surplus, dealers said. Moreover, some traders expect the central bank to wait for a few weeks and assess the liquidity condition closer to the festival season and then conduct the operation accordingly.

At the start of trade today, liquidity in the banking system was estimated to be in a surplus of 90.71 bln rupees, against a deficit of 340.61 bln rupees on Friday. "We expect a 100-150 bln (rupees) quantum to be auctioned in the first OMO sale," a dealer at a private bank said. "Provided the quantum crosses the expectations, yields may rise by 1-2 basis points." The market widely expects sales of gilts worth 400-750 bln rupees through an open market operation in Oct-Mar, dealers said.

The market lacked other firm cues during the day, as US Treasury bonds are not traded today, a dealer said. The US financial markets are closed on account of Columbus Day.

Traders may track crude oil prices as the impact of the Israel-Hamas war spills over to global commodity prices. Oil prices have risen 4% since the start of the war. All eyes are on Iran as Tehran's involvement would severely affect crude prices.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 273.50 bln rupees at 1600 IST, compared with 559.85 bln rupees at 1500 IST on Friday.

For the rest of the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.33-7.39%.  (M.C. Adhiinthran)

India Gilts: Down amid worries over OMO sales by RBI

MUMBAI--1240 IST--Prices of government bonds remained down as the market sentiment was dampened after the Reserve Bank of India on Friday said that it may conduct open market operation sales to manage liquidity, dealers said. 

"I am expecting OMO (open market operations) notification to come out this month. If RBI wants to manage the liquidity, it will likely conduct OMOs in October," a dealer at a state-owned bank said. "Starting this month, it can conduct monthly OMOs, where the quantum may be large."

On Friday, the central bank did not clarify the timeline and the quantum for the open market operations. The market remained uncertain of the new supply pressures that may hit in Oct-Mar, dealers said. 

The central bank may opt to conduct OMO sales when the liquidity eases a bit, and the banks remain hesitant to park money through variable rate reverse repo auctions, dealers said. Traders now look forward to the notification from the RBI regarding the OMO sales.

Apart from the uncertainties around OMO sales, the market lacked any significant domestic cues, which kept the volumes dull during the day, dealers said. 

Meanwhile, the yield on the benchmark 7.18%, 2033 hovered around 7.35%, as investors stepped up purchase around that level, which is considered lucrative, dealers said. This limited the fall in gilt prices.

Dealers speculated that the state-owned banks were on the buying side, while primary dealerships were selling.

Now the market awaits the US Treasury yields to be traded in the European market, which may lend firm cues to the market, dealers said. US yields were not traded in Asia today as Japan's financial markets were shut on account of Health and Sports Day. 

The yield on the 10-year US Treasury note was at 4.80%, against 4.74% at the time of the Indian money market close on Friday. US Treasury yields rose as US government data showed that the economy added 336,000 jobs in September, against the expectation of 170,000, according to a Dow Jones' poll.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 120.80 bln rupees at 1236 IST, compared with 401.90 bln rupees at 1300 IST on Friday.  

During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.33-7.38%.(Siddhi Chauhan)

India Gilts: Little changed due to lack of firm domestic cues

MUMBAI--0932 IST--Prices of government bonds were little changed as the market lacked firm domestic cues after the Monetary Policy Committee's review outcome on Friday, dealers said.

"There seems to be some support around 7.35% on the 7.18%, 2033 bond, so there is more buying expected at these levels," a dealer at a private bank said. "After the fall on Friday, the market may not move as much today." On Friday, bonds slumped after the Reserve Bank of India said it may consider open market operations sales to manage liquidity in the banking system.

Some traders covered their short bets, while investors such as state-owned banks stepped up purchase around the 7.35% yield on the benchmark 10-year bond, which is considered lucrative, dealers said.

The market now awaits the notification from the central bank regarding the OMO sales timeline and quantum, dealers said. The RBI did not provide a timeline or quantum on Friday regarding the same. 

ICICI Bank said in a research report on Friday that the central bank may conduct open market operation sales of 500 bln rupees in Oct-Mar.

A rise in US Treasury yields weighed on the gilts but the losses were limited as traders avoided aggressive bets for the lack of domestic cues, dealers said. The yield on the benchmark 10-year US Treasury note was at 4.80% in early trade compared with 4.74% at the time of Indian market close on Friday.

US Treasury yields rose as US government data showed that the economy added 336,000 jobs in September as against the expectation of 170,000, according to a Dow Jones poll.

According to data on the Reserve Bank of India's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 32.20 bln rupees at 0932 IST, compared with 11.90 bln rupees at 0935 IST on Friday. 

During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.32-7.36%.  (Nishat Anjum)

India Gilts: Seen down after rise in US yields on robust jobs data

MUMBAI – Prices of government bonds are likely to open lower due to a rise in US Treasury yields on Friday after jobs data in the world's largest economy suggested the Federal Reserve may keep its monetary policy tighter for longer, dealers said.

The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.32-7.38% today as against 7.34% on Friday.

After Indian market hours on Friday, US government data showed that the economy added 336,000 jobs in September as against the expectation of 170,000, according to a Dow Jones poll. The unemployment rate remained steady at 3.8%, tempering the jump in US Treasury yields.

The reading did not have much impact on traders' rate hike expectations for the US Federal Open Market Committee's next meeting in November, with only 20% of Fed funds rate traders expecting an increase in the policy rate, according to the CME Group's Fedwatch tool.

The yield on the benchmark 10-year US Treasury note was at 4.80% today compared with 4.74% at the time of Indian market close on Friday. 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.

Traders are also wary of the rush away from risk assets amid the escalation of tensions between Israel and Palestine over the weekend, with dozens of deaths on both sides in armed conflict. The geopolitical tensions pushed up Brent crude prices for December delivery nearly 4% to $88.00 per barrel in Asian trade today.

Regardless, domestic gilt prices are likely to trade in a thin band as traders avoid aggressive bets after the volatility on Friday, dealers said.

Yields of government bonds shot up after Reserve Bank of India Governor Shaktikanta Das said the central bank may explore open market operation sales to manage liquidity in the banking system. Not only did the 10-year benchmark gilt yield end at the highest level since Mar 15, but it was also the biggest one-day jump since Aug 5, 2022.

The announcement spooked the market due to the potential timing and quantum of such a move, which is expected to have an outsize impact on gilt yields rather than liquidity control, dealers said. ICICI Bank Research has estimated gilt sales by the RBI could total 500 bln rupees by March.

Losses are expected to be restricted by firm buys from state-owned banks, similar to Friday, as the 10-year yield nears 7.35%, which is considered lucrative for traders to add bonds to their held-to-maturity portfolios, dealers said. On Friday, state-owned banks bought 100 bln rupees worth of gilts on the secondary market, according to Clearing Corp of India Ltd data.  (Aaryan Khanna)

End

US$1 = 83.26 rupees

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

Edited by Manisha Baxla

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