Informist, Monday, Aug 8, 2022

By Aaryan Khanna

NEW DELHI – Government bond prices slumped today as traders trimmed their holdings tracking a sharp rise in US Treasury yields on Friday following stronger-than-expected US jobs data, dealers said.

Today, the 10-year benchmark 6.54%, 2032 bond settled at 94.56 rupees, or 7.35% yield, as against 94.87 rupees, or 7.30% yield, on Friday.

Data showed that the world's largest economy created more jobs than expected in July, strengthening expectations of sharp rate hikes by the Federal Reserve in the next few meetings to bring down inflation, even as the economy evaded a recession.

According to the data, US non-farm payrolls increased by 528,000 jobs last month, far exceeding the increase of 398,000 in June.

Consequently, the yield on the 10-year US Treasury note jumped 15 bps to 2.83% on Friday, and was above the key 2.80% mark during Indian market hours 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 to foreign investors.

Trade volumes were muted due to a lack of significant domestic cues, and global triggers remaining steady during the day, dealers said.
 

Moreover, traders avoided stepping up purchases after the recent volatility due to the policy outcome.

The Reserve Bank of India's Monetary Policy Committee on Friday raised the repo rate by a more-than-expected 50 basis points to 5.40%, against the market's hope of a 35-bps rate hike. 

With prevailing market uncertainty about the near-term trading range after the rate hike, investors kept clear of buying the 6.54%, 2032 bond until its yield rose above the psychologically-crucial 7.35% mark, dealers said.

"Demand will come in once the market settles into a range, which is now being formed based on the takeaways from policy," a dealer at a primary dealership said. "I don't think anybody expects a runaway appreciation in the yield."

Traders avoided aggressive bets in the curtailed week. Money markets will remain shut Tuesday on account of Muharram.

With the key level holding, short sellers eased off on fresh bets, keeping prices in a narrow band during the day. There were no significant domestic cues, and investors' focus is now on the US CPI inflation print for July, scheduled for release later this week, dealers said.

On the domestic front, traders looked ahead to India's CPI inflation print for July, due Friday. Market sentiment was dented after Friday's policy outcome as comments by RBI officials indicated that tackling inflation would remain the priority, dealers said.

The central bank retained its retail inflation forecast for the current financial year started April at 6.7%, citing geopolitical shocks.

The Jul-Sep forecast was trimmed 30 bps to 7.1%. Dealers eyed the upcoming print to gauge whether price pressures would ease as crude oil and other commodity prices had fallen off highs.

"The market has cleared out the froth over the two days (Friday and today), and is now ready for and looking forward to fresh data," a dealer at a foreign bank said. "The shortened weeks will prevent a build up of heavy positioning."

According to data on the central bank's Negotiated Dealing System – Order Matching platform, the market-wide turnover was 215.00 bln rupees compared with 488.55 bln rupees on Friday.

OUTLOOK

Money markets will be shut Tuesday on account of Muharram.

On Wednesday, prices of government bonds are seen opening steady on caution ahead of the US CPI print release after market hours.

The US CPI print for July is expected to ease to 8.8% in July from a four-decade high of 9.1% in June.

The RBI's comments on the uncertainty over the inflation outlook and the lack of forward guidance may push gilt prices lower, dealers said.

Overnight movement in crude oil prices and US Treasury yields may also lend early cues to domestic bonds.

The yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.32-7.38%.

India Gilts: Remain sharply down on jump in US yields; Jul CPI eyed

NEW DELHI--1420 IST--Government bond prices stayed sharply down as US Treasury yields remained elevated after economic data indicated the sharp pace of rate hikes may continue in the US, dealers said.

The yield on the 10-year benchmark US Treasury note rose to 2.83% on Friday as against 2.68% Thursday, and was above the key 2.80% mark today.

After the initial fall, traders avoided placing large bets as the yield on the 10-year benchmark 6.54%, 2032 bond approached the key 7.35% mark. Investors stepped up purchases when the gilt's yield topped the level, dealers said.

With the key level holding, short sellers eased off on fresh bets, keeping prices in a narrow band. There were no significant domestic cues during the day, and investor focus is now on the US CPI inflation print for July, scheduled to be released later this week, for line up bets, dealers said.

"The triggers have not changed since the morning, for the fall," a dealer at a state-owned bank said. "On the other hand, there's no reason to step up buying either after the rate hike being what it was."

On Friday, the Reserve Bank of India's Monetary Policy Committee raised the repo rate by a more-than-expected 50 basis points to 5.40%, against the market's hope of a 35 bps rate hike.

Today, traders were cautious after the volatility on Friday, amid the shortened week. Money markets will be closed Tuesday for Muharram.

During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.31-7.38%.  (Aaryan Khanna)

India Gilts: Plunge as US yields surge on Fri after strong jobs data

NEW DELHI--0945 IST--Prices of government bonds plunged because of a surge in US Treasury yields following stronger-than-expected US jobs data, dealers said.

US Treasury yields jumped on Friday after data showed the world's largest economy created more jobs than expected in July, strengthening expectations the Federal Reserve will continue to sharply raise interest rates in the next few meetings to bring down inflation.

The yield on the 10-year benchmark US Treasury note rose to 2.83% on Friday as against 2.68% Thursday.

Appetite for dated securities was muted after the Reserve Bank of India's Monetary Policy Committee hiked the repo rate by a quantum higher than expected, dealers said.

The committee hiked the repo rate by 50 basis points as against expectations of a 35 bps hike.

Moreover, comments by central bank officials suggested a focus on controlling high inflation that dampened 

market sentiment.

"The 15 bps rise in US yields on Friday is driving the market right now and also the rate hike on Friday is weighing on the market," a dealer at a private bank said. 

"The next big event for the market would be the US CPI and India CPI later this week."

A rise in the 5-year overnight indexed swap rate also weighed on gilt prices, dealers said. The 5-year OIS rose to as much as 6.38% today as against 6.27% on Friday.

During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.31-7.38%. (Shubham Rana)

India Gilts: Seen down as RBI hikes rate by 50 bps, US yields surge

NEW DELHI – Prices of government bonds are seen opening lower today after the Reserve Bank of India's Monetary Policy Committee raised the repo rate by a higher-than-expected quantum on Friday, dealers said. A sharp rise in US Treasury yields on Friday is also expected to weigh on domestic bond prices. 

The RBI's rate-setting panel raised the repo rate by 50 basis points as against expectations of a more moderate 35-bps hike. Comments by central bank officials indicated a focus on controlling high inflation, dampening market sentiment.

The yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.28-7.37% today, as against 7.30% on Friday.

US Treasury yields jumped on Friday after data showed the world's largest economy created more jobs than expected in July, strengthening expectations the US Federal Reserve will continue to raise interest rates in the next few meetings to tame inflation.

The yield on the 10-year benchmark US Treasury note rose to 2.83% on Friday against 2.68% Thursday. 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. (Shubham Rana)

End

US$1 = 79.66 rupees

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

Edited by Tanima Banerjee

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