Informist, Friday, Jul 8, 2022

By Aaryan Khanna

NEW DELHI – Government bond prices ended sharply lower after the Reserve Bank of India set lower-than-expected cut-off prices on gilts at the 330-bln-rupee weekly auction today.

The 10-year benchmark 6.54%, 2032 bond settled at 94.10 rupees, or 7.41% yield, as against 94.49 rupees, or 7.35% yield on Thursday.

The government had offered to sell 40 bln rupees of the 6.69%, 2024 bond, 70 bln rupees of the 7.10%, 2029 bond, 130 bln rupees of the 6.54%, 2032 bond, and 90 bln rupees of the 6.95%, 2061 bond today.

There was less demand from short sellers than in previous auctions, after short bets were covered earlier this week on Wednesday, which had led to a surge in gilt prices, dealers said. Gilts gave up some gains on Thursday with the auction looming.

Investors were keen to stock up on gilts after booking profits during the week, but demanded higher yields for the fresh supply. In Apr-Jun, most state-owned banks had to book large mark-to-market losses on their trading portfolios and were wary of rising yields amid an uncertain global environment, dealers said.

"Anything below 7.40% (yield on the 10-year benchmark gilt) is a sell. These are purchases for the banks' available-for-sale books, which means traders will be wary of mark-to-market losses and avoid aggressive buys," a dealer at a state-owned bank said.

Other segments of the market such as institutional investors were also less aggressive than usual in their bids, particularly for the 2061 bond, due to increased issuances of state bonds maturing over 20 years in recent weeks. Pension funds and insurers typically prefer state debt as it offers a spread over gilts of similar maturities, dealers said.

Moreover, market appetite for gilts under 7.50% yield on the 10-year benchmark bond had begun to wane in the absence of significant measures by the central bank to support prices, dealers said. The Centre is projected to borrow a record 14.31 trln rupees in 2022-23 (Apr-Mar).

Following the auction result, traders avoided covering their short bets until yield on the 10-year benchmark bond rose to the psychologically-crucial 7.42% mark, dealers said.

Investors also avoided stocking up on gilts due to rising US Treasury yields, after the June US Federal Reserve policy meeting minutes indicated sharp rate hikes may follow in July, dealers said.

Globally, investors waited for the US employment report for June due today for cues about the strength of the economy for further pointers on rate hikes. The yield on the 10-year benchmark US Treasury note traded near the key 3% mark at the end of Indian market hours.

Gilt prices were also under pressure from an overnight jump in oil prices. Crude futures surged on Thursday after steep losses in the past two sessions, as investors' concerns about tight supplies outweighed fears of a looming global economic slowdown reducing demand for the commodity.

The Brent crude contract for September delivery settled nearly 3% higher at $104.65 per barrel on Thursday.

Before the auction result, gilts were off lows briefly as traders speculated state-owned banks had bid firmly for the gilts at the auction, but the rise petered out soon.

"I see this as the start of a shift away from taking demand for granted, the auctions from now on will not go as smoothly as before considering that we are seeing signs of resistance," a dealer at a primary dealership said.

Last week, the RBI had devolved 8.72 bln rupees of the floating rate bond 2028 on underwriters at the weekly gilt auction.

According to data on Reserve Bank of India's Negotiated Dealing System – Order Matching platform, the market-wide turnover was 203.55 bln rupees, compared with 285.90 bln rupees on Thursday.

OUTLOOK

Gilts are not traded on Saturday.

On Monday, government bond prices may open steady as traders keep to the sidelines due to a lack of significant domestic cues, dealers said.

Gilt prices may remain under pressure on concern that investors' bond portfolios may be nearing capacity, following muted demand for dated securities over the past two weekly gilt auctions, dealers said.

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

Yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.38-7.46%.

India Gilts: Slump on weak demand, low cutoff prices at auction

NEW DELHI--1535 IST--Government bond prices slumped further after the Reserve Bank of India set lower-than-expected cut-off prices on gilts at the 330-bln-rupee weekly auction, dealers said.

Demand at the auction was weak as investors avoided stocking up on gilts due to rising US Treasury yields, after the June US Federal Reserve policy meeting minutes indicated sharp rate hikes may follow in July, dealers said. Yield on the 10-year benchmark US Treasury note was at 2.98%.

Earlier, traders had expected the auction to sail through, including participation from state-owned banks, dealers said.

"The result is slightly unexpected, but it makes sense now that the 10-year US Treasury yield has returned to 3%. Nobody wants to go long at these yield levels before policy shocks," a dealer at a private bank said.

Following the result, traders avoided covering their short bets until yield on the 10-year benchmark bond rose to the psychologically-crucial 7.42% mark, dealers said. Gilt trading hours were extended till 1600 IST for today due to a delay in the auction result.

During the day, yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.39-7.43%.  (Aaryan Khanna)

India Gilts: Erase some losses as demand at auction seen firm

NEW DELHI--1400 IST--Government bond prices were off lows as traders speculated that demand for gilts at the 330-bln-rupee weekly gilt auction was firm after bidding ended, dealers said.

The government had offered to sell 40 bln rupees of the 6.69%, 2024 bond, 70 bln rupees of the 7.10%, 2029 bond, 130 bln rupees of the 6.54%, 2032 bond, and 90 bln rupees of the 6.95%, 2061 bond.

State-owned banks are likely to stock up on the 2029 gilt for their held-to-maturity books, while traders may cover their short bets in the 2032 bond, which may lead to higher cut-off prices than earlier anticipated, dealers said.

The Reserve Bank of India may set a cut-off price close to 94.30 rupees at the auction of the 6.54%, 2032 bond, dealers said, as against 94.21 rupees estimated in an Informist poll of 14 dealers earlier today.

"We are in the market at all levels in the 2029 paper, and outstanding short positions should get covered in the 10-year benchmark (6.54%, 2032) bond as usual," said a dealer at a state-owned bank.

If the cut-off comes on expected lines, short covering in the secondary market after the auction would also be limited and prices may slip, dealers said.

Bond prices remained lower due to an overnight rise in crude oil prices and US Treasury yields.

During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.35-7.42%.  (Aaryan Khanna)

India Gilts: Fall as crude, US yields rise overnight; auction eyed

NEW DELHI--0925 IST--Government bond prices fell in early trade today because of an overnight rise in crude oil prices and US Treasury yields, and as traders placed short bets before weekly auction of gilts, dealers said.

"Crude is up, US yields rose too and then there is the 330-bln-rupee supply, so all negative factors for the market today," a dealer at a private bank said.

The government is looking to raise 330 bln rupees today through the sale of 40 bln rupees of the 6.69%, 2024 bond, 70 bln rupees of the 7.10%, 2029 bond, 130 bln rupees of the 6.54%, 2032 bond, and 90 bln rupees of the 6.95%, 2061 bond.

Today, the auction is expected to sail through as the current yield levels are seen well within the Reserve Bank of India's comfort levels, dealers said.

On the global front, the yield on the 10-year benchmark US Treasury note ended higher at 3.01% on Thursday as investors awaited the US employment report for June due today for cues about the strength of the economy as the US Federal Reserve hikes interest rates in a bid to curb inflation.

Brent crude contract for September delivery jumped to $104.65 per barrel on Thursday against $100.69 per bbl on Wednesday as investors' concerns over tight supplies outweighed looming global economic slowdown. 

During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.35-7.42% (Shubham Rana)

India Gilts: Seen down before auction; rise in US yld, crude to weigh

NEW DELHI – Prices of government bonds are seen opening lower today as traders may look to place short bets ahead of the 330-bln-rupee weekly auction, dealers said.

Moreover, a rise in US Treasury yields and crude oil prices may also weigh on domestic bond prices.

The yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.32-7.40%, as against 7.35% on Thursday.

Some traders may keep to the sidelines on caution before the debt sale and may take cues from the result of the debt sale, dealers said.

The government has offered to sell 40 bln rupees of the 6.69%, 2024 bond, 70 bln rupees of the 7.10%, 2029 bond, 130 bln rupees of the 6.54%, 2032 bond, and 90 bln rupees of the 6.95%, 2061 bond.

Globally, the yield on the 10-year benchmark US Treasury note rose sharply on Thursday as investors awaited the US employment report for June due today for cues about the strength of the economy as the US Federal Reserve hikes interest rates in a bid to curb inflation.

A rise in US Treasury yields narrows the interest rate differential between the haven asset and emerging market debt, making the latter less appealing to foreign investors.

Crude oil futures jumped on Thursday after steep losses in the past two sessions, as investors' concerns over tight supplies outweighed concerns that a looming global economic slowdown will cut demand for crude. 

The Brent crude contract for September delivery ended at $104.65 per barrel on Thursday against $100.69 per bbl on Wednesday.  (Shubham Rana)

End

US$1 = 79.25 rupees

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

Edited by Michael Correya

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