Informist, Thursday, Jun 9, 2022

By Aaryan Khanna

NEW DELHI – Government bonds ended mixed today, with most papers recovering sharp losses as US Treasury yields and crude oil prices fell from highs earlier in the day.

The 10-year bond settled at 93.53 rupees, or 7.50% yield, as against 93.54 rupees, or 7.49% yield, on Wednesday.

Gilts fell in early trade after Brent crude oil prices rose nearly 2.5% on Tuesday to hit a 13-week high, on signs of rising demand for fuel in the US and China amid growing supply concerns in several countries.

Today, the Brent crude oil contract for August delivery climbed sharply above the key $124 a barrel mark, before falling to $123.42 a bbl at the end of Indian market hours.

Meanwhile, yield on the 10-year benchmark US Treasury note was at 3.02% at the end of Indian market hours, after it rose to 3.06% earlier in the day.

The 5.74%, 2026 bond fell, but losses were limited as short-term bonds remained in favour after the Reserve Bank of India refrained from hiking the cash reserve ratio at the policy review on Wednesday, and kept the requirement unchanged at 4.5% of net demand and time liabilities.

Towards the end of the day, with the recovery in prices across maturities, the 2026 bond ended higher as traders stocked up on the gilt as prices seen lucrative for now, dealers said.

"The short-end has remained supported due to the lack of CRR hike, which has a potential to keep the short-term yields anchored until the next trigger," a dealer at a state-owned bank said.

The 10-year benchmark 6.54%, 2032 gilt ended largely unchanged as investors stepped up purchases after the bond's yield rose above the psychologically-crucial 7.52% mark, dealers said.

Traders also speculated that the RBI may reject some bids above 7.50% yield for the 2032 bond before its sale this week after reports suggested that the Centre has a cash buffer, dealers said.

Short sellers covered their bets today as the lack of fresh issuance would drive up prices and make cheap paper more scarce, buoying the 10-year benchmark to the previous close, dealers said.

The government has offered to sell 40 bln rupees of the 4.56%, 2023 gilt, 70 bln rupees of the 7.10%, 2029 bond, 130 bln rupees of the 6.54%, 2032 gilt, and 90 bln rupees of the 6.95%, 2061 gilt on Friday.

On Tuesday, Informist exclusively reported, quoting a banking industry source, that the RBI is comfortable with the present level of bond yields, and does not see the need to intervene despite the recent surge.

"We are looking ahead to the auction, but from the market movement today short sellers are keeping their positions limited on the fear that a cancellation would prevent a meaningful covering at the auction tomorrow (Friday)," a dealer at a primary dealership said.

The 6.67%, 2035 bond rose as short sellers aggressively covered their bets ahead of the coupon payout on the gilt next week. The overnight repo window would close ahead of the coupon payment by the government, with an inability to borrow the 2035 bond, dealers said.

Meanwhile, the Centre's hike in minimum support prices for kharif crops on Wednesday was largely neutral for gilts at the current juncture, dealers said.

The fiscal impact of the outlay, if any, would not affect the market till at least September, when the borrowing calendar for the first half of the current financial year runs out.

Moreover, with crop prices already elevated due to the war between Russia and Ukraine, the hike in minimum support prices would lead to a long-term inflationary impact but would not feed into immediate food inflation, dealers said.

According to data on the RBI's Negotiated Dealing System – Order Matching platform, the market-wide turnover was 320.20 bln rupees compared with 462.90 bln rupees on Wednesday.

OUTLOOK

On Friday, government bonds are expected to open steady on caution ahead of the 330-bln-rupee weekly gilt auction.

The government has offered to sell 40 bln rupees of the 4.56%, 2023 gilt, 70 bln rupees of the 7.10%, 2029 bond, 130 bln rupees of the 6.54%, 2032 gilt, and 90 bln rupees of the 6.95%, 2061 gilt.

The RBI's CPI inflation estimate for 2022-23 (Apr-Mar) at 6.7%--100 bps above the previous forecast--may also weigh on sentiment, dealers said.

Traders may avoid large bets ahead of the US CPI data for May, scheduled to be released after market hours Friday, which is seen lending cues to the Federal Reserve's pace of rate hikes.

Traders will keep an eye out for any sharp movement in crude oil prices or US Treasury yields.

The yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.45-7.55%.

India Gilts: Off lows as crude, US yields ease; Fri auction eyed

NEW DELHI--1355 IST--Government bonds were off lows as prices of crude oil and US Treasury yields eased from the day's high, leading traders to cover short bets, dealers said.

After surging past $124 a bbl earlier, the Brent crude contract for August delivery fell to $123.07 a bbl. Meanwhile, the yield on the 10-year benchmark US Treasury note was at 3.02%, after it rose to 3.06% earlier in the day.

Short sellers were uncertain in driving up the yield on the 10-year benchmark 6.54%, 2032 bond past 7.50% ahead of its 130-bln-rupee issuance on Friday, on fears that the Reserve Bank of India could reject all bids for the paper, dealers said.

A lack of fresh supply would drive up prices and make cheap paper more scarce for short sellers to cover their bets.

"There is some optimism on government cash balances at this point after comments from earlier this week, and there could be a cancellation if the RBI wants to signal a halt in yield rise above 7.50% (on the 10-year benchmark)," a dealer at a private bank said. 

A proxy for tracking the quantum of short bets is the volume of interbank repo trades in a given paper, as overnight short sellers have to necessarily borrow the securities.

According to data on Clearcorp's Repo Order Matching System today, the repo turnover for the 10-year benchmark 6.54%, 2032 gilt was at 77.94 bln rupees.

On Monday, a finance ministry official said the government saved 100 bln rupees in 2021-22 (Apr-Mar), with introduction of a treasury single account.

During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.47-7.54%. (Aaryan Khanna)

India Gilts: Fall tracking rise in crude prices, US yields

NEW DELHI--0936 IST--Government bonds fell as traders trimmed their holdings noting a rise in crude oil prices and US Treasury yields, dealers said. 

Traders placed short bets in the 10-year benchmark 6.54%, 2032 bond ahead of the 130-bln-rupee supply on Friday.

The government has offered to sell 40 bln rupees of the 4.56%, 2023 gilt, 70 bln rupees of the 7.10%, 2029 bond, 130 bln rupees of the 6.54%, 2032 gilt, and 90 bln rupees of the 6.95%, 2061 gilt on Friday.

"Right now crude is a big worry as these elevated levels are sustaining," a dealer at a state-owned bank said. "Going ahead, the supply overhang is the biggest factor for the market with 320-330 bln rupees of supply every week."

Investors stocked up on the 10-year 2032 paper near the 7.52% yield level, which restricted losses, dealers said.

Brent crude oil prices jumped nearly 2.5% to hit a 13-week high on signs of rising demand for the fuel in the US and China amid growing supply concerns in several countries. 

Brent crude for August delivery ended at $123.58 per barrel on Wednesday, against $120.57 per bbl on Tuesday.

US Treasury yields ended higher on Wednesday as investors took positions before the inflation data, due on Friday. Muted demand at the 10-year bond auction also pushed yields higher.

The yield on the 10-year US Treasury note ended at 3.03% on Wednesday, against Tuesday's close of 2.98%. 

Today, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.49-7.55%. (Shubham Rana)

India Gilts:Seen down before auction Fri; higher crude, US ylds weigh

NEW DELHI - Prices of government bonds are seen opening lower today because of a rise in crude oil prices and US Treasury yields, dealers said. Traders may wait to make room for fresh supply at auction on Friday, they said.

The government has offered to sell 40 bln rupees of the 4.56%, 2023 gilt, 70 bln rupees of the 7.10%, 2029 bond, 130 bln rupees of the 6.54%, 2032 gilt, and 90 bln rupees of the 6.95%, 2061 gilt on Friday.

Today, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.47-7.55%, against 7.49% on Wednesday.

Brent crude oil prices jumped nearly 2.5% to hit a 13-week high on signs of rising demand for the fuel in the US and China amid growing supply concerns in several countries. Brent crude for August delivery ended at $123.58 per barrel on Wednesday, against $120.57 per bbl on Tuesday. Typically, a rise in crude oil prices increases the risk of imported inflation in India and provides less room for the Reserve Bank of India to prolong its monetary policy accommodation.

US Treasury yields ended higher on Wednesday as investors took positions before the inflation data, due on Friday. Muted demand at the 10-year bond auction also pushed yields higher.

The yield on the 10-year US Treasury note ended at 3.03% on Wednesday, against Tuesday's close of 2.98%. 

While the lack of a negative surprise at the Monetary Policy Committee meeting outcome may support prices, the RBI's CPI inflation estimate for 2022-23 (Apr-Mar) at 6.7%--100 bps above the previous forecast--may weigh, dealers said.

On Wednesday, the committee hiked the repo rate by 50 basis points to 4.90%, a move in line with expectations.

The Centre also notified a sharp increase in minimum support prices for kharif crops. The increased fiscal support to farmers for the sowing season is likely to put pressure on the Centre's finances. This may weigh on bonds today, dealers said.

Investors are likely to stock up on the 10-year benchmark 6.54%, 2032 bond near the 7.53-7.55% yield, levels that are considered lucrative, they said. (Shubham Rana)

End

US$1 = 77.77 rupees

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

Edited by Aditya Sakorkar

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