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India Gilts Review: Steady ahead of India Jul CPI data; volume low

Informist, Monday, Aug 14, 2023

 

By Nishat Anjum

 

MUMBAI – Prices of government bonds ended little changed today as trade remained lacklustre throughout the day due to lower participation in a holiday-truncated week and ahead of the release of India July CPI data, dealers said. 

 

Money markets will remain shut on Tuesday as India celebrates its 77th Independence Day and on Wednesday on account of Parsi New Year.

 

Traders avoided aggressive bets on fears that CPI data would show inflation spiked in July from a month ago on relentless rise in vegetable prices, especially those of tomato. 

 

The 10-year benchmark 7.26%, 2033 bond closed at 100.38 rupees, or 7.20% yield, against 100.39 rupees, or 7.20% yield, on Friday.

 

At 1730 IST, data released by the National Statistical Office showed India's annual inflation rate, based on the Consumer Price Index, spiked to a 15-month high of 7.44% in July from 4.87% in June. The rise in the headline print was mainly due to a surge in retail prices of vegetables, particularly tomato. In July, the inflation in tomato was 201.54%, highest in at least eight years. In April 2022, CPI inflation was at 7.79%. At 7.44%, the headline CPI print was the second highest since October 2020. 

 

According to the median of an Informist poll of 26 economists, India's CPI inflation was seen spiking to 6.5% in July, the highest in at least six months. The headline inflation rate was 4.81% in June and 6.71% in July last year.

 

"There are just one or two participants that expect the data to be around 7%, but large consensus is of 6.50% only," a dealer at a primary dealership said.

 

With July CPI print coming in above 7%, yield on the benchmark 7.26%, 2033 paper may jump to the 7.24-7.25% levels, dealers said. 

 

Dealers said the uptick in vegetable prices is seen as seasonal, but there is fear that a rise in prices of other commodities, such as cereals and pulses, may push inflation higher in the coming months.

 

During the day, yield on the benchmark 10-year US Treasury note rose to 4.19% from 4.11% at the end of Indian market hours 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.

 

US Treasury yields rose as producer price inflation for July was higher than economists' expectations. The Producer Price Index rose 0.3% on month in July, the Bureau of Labor Statistics reported on Friday. This was the biggest monthly gain since January. Meanwhile, the revised reading for June remained unchanged.

 

Producer Price Index gauges the prices that goods and services producers receive for their products as opposed to those that consumers pay. Economists had expected producer prices to inch up by 0.2% on month, as compared to the 0.1% uptick originally reported for June.

 

Core Producer Price Index, which excludes food and energy, also increased 0.3%, the biggest monthly increase since November, after falling 0.1% in June. On a yearly basis, the core PPI rose 2.4%, the lowest since January 2021.

 

Higher-than-expected Producer Price Index prompted fears that the US Federal Reserve may keep the rates higher for longer. The CME FedWatch tool showed that 90.5% Fed fund futures traders are now expecting the Fed to maintain status quo in the September meeting, while the rest expect a 25-basis-point rate increase.

 

Traders also await the US Federal Open Market Committee's July meeting minutes, scheduled to be released on Wednesday, which may give an insight into the rate trajectory in the US, dealers said.

 

"Thursday is going to be a crucial day," a dealer at a state-owned bank said. "Even if data and minutes are slightly better than expected, I do not see 7.05-7.10% (yield on the benchmark 7.26%, 2033 bond) to be returning anytime soon." 

 

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the turnover today was 151.30 bln rupees, compared with 460.30 bln rupees on Friday. Meanwhile, there were no trades with the digital rupee today.

 

OUTLOOK

Money markets will be shut on Tuesday and Wednesday.

 

On Thursday, government bond prices are seen opening sharply lower due to stronger-than-expected India July CPI data, dealers said. India July CPI combined inflation rate stood at 7.44%, as against expectations of 6.5%.

 

Traders may also track any sharp movement in the US Treasury yields and crude oil prices.

 

The yield on the 10-year benchmark 7.26%, 2033 bond is seen in a range of 7.17-7.25%.

 

 

Today

 Friday

Price

Yield

Price

Yield

7.26%, 2033

100.38007.2034%100.39007.2021%

7.38%, 2027

100.62007.1882%100.63007.1857%
7.17%, 203099.82007.2017%99.82007.2017%
7.18%, 203799.22007.2691%99.28757.2614%
7.06%, 202899.50007.1851%99.51757.1803%

India Gilts: Recover most losses tracking intraday fall in US yields

 

 1500 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS
07.26%, 2033 
PRICE (rupees)100.35100.38100.24100.28100.39
YTM (%)      7.20867.20347.22407.21817.2021

 

MUMBAI–1500 IST–Prices of government bonds recovered most losses, tracking an intraday fall in US Treasury yields, dealers said. Traders avoided aggressive bets due to caution ahead of the India July CPI inflation data, scheduled to be released at 1730 IST.

 

"The market is tracking US yields too closely. We ideally should not track tick by tick," a dealer at a state-owned bank said. "But since, we have no cues in the domestic market, ahead of the CPI data, traders are just following US yields."

 

According to the median of an Informist poll of 26 economists, the relentless rise in tomato prices is likely to have spiked India's CPI inflation to 6.5% in July, the highest in at least six months. The headline inflation rate was 4.81% in the previous month and 6.71% in July last year.

 

The gilt market may closely track US Treasury yields in the coming days as well, if the India July CPI data comes along the expected lines, dealers said.

 

The US Treasury yields inched down to 4.15% in european trade, from the day's high of 4.19%. The market assessed the latest inflation figures data from the world's largest economy.

 

US producer price index for July was at 0.3% on a monthly basis, slightly higher than the estimate of 0.2%, according to a poll by Dow Jones. It marked the biggest monthly increase since January. The reading was contradictory to July's CPI, released Thursday, which suggested pressures from rising prices may be easing. 

 

Traders also await the US Federal Open Market Committee's July meeting minutes scheduled to be released on Wednesday, which may give insight into rate trajectory in the US, dealers said.

 

According to data on the Reserve Bank of India's Negotiated Dealing System–Order Matching platform–the market-wide turnover was 97.50 bln rupees at 1500 IST compared with 283.65 bln rupees at 1430 IST on Friday.

 

For the rest of the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.19-7.23%. (Nishat Anjum)


India Gilts: Down as US ylds rise; mkt lacklustre in truncated week

 

 1212 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS
07.26%, 2033 
PRICE (rupees)100.33100.34100.24100.28100.39
YTM (%)      7.21157.20897.22407.21817.2021

 

MUMBAI–1212 IST–Prices of government bonds remained a tad lower due to a rise in US Treasury yields, dealers said. Further, the market was lacklustre as traders stayed on the sidelines in a truncated week.

 

Indian financial markets will remain closed on Tuesday on account of Independence Day, while the money market will be shut on Wednesday as well due to the Parsi New Year.

 

"There are two reasons for the current condition. First is obviously traders are not there in the market. Second is that these are good levels to buy, but there is no positive sentiment or cue," a dealer at a state-owned bank said.

 

Today, state-owned banks were speculated to have stepped up purchases at current market levels, which are considered lucrative, dealers said.

 

The market now awaits the India CPI inflation data for July, due later today, which may give insights into the future rate trajectory of the Reserve Bank of India, dealers said. According to the median of an Informist poll of 26 economists, the relentless rise in tomato prices is likely to have spiked India's CPI inflation to 6.5% in July, the highest in at least six months.

 

Some traders also expect the print to be at 7% for July. If that comes true, the yield on the benchmark 7.26%, 2033 paper may jump to the 7.23-7.24% levels, dealers said.

 

Meanwhile, US Treasury yields rose as producer price inflation for July was higher than economists' expectations. The producer price index rose 0.3% on month in July, the Bureau of Labor Statistics reported on Friday. This was the highest monthly increase since January. Meanwhile, the revised reading for June remained unchanged.

 

The yield on the benchmark 10-year US Treasury note rose to 4.18% during the day from 4.11% at the end of Indian market hours on Friday.

 

Today, trade volume remained low as traders avoided placing large bets. According to data on the Reserve Bank of India's Negotiated Dealing System–Order Matching platform–the market-wide turnover was 46.95 bln rupees at 1215 IST compared with 165.65 bln rupees at 1230 IST on Friday.

 

For the rest of the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.19-7.23%. (Nishat Anjum)


India Gilts: Tad dn as US ylds rise; volumes low due to truncated wk

 

 0930 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS
07.26%, 2033 
PRICE (rupees)100.33100.33100.24100.28100.39
YTM (%)      7.21157.21087.22407.21817.2021

 

MUMBAI–0930 IST–Prices of government bonds fell slightly tracking a rise in US Treasury yields, dealers said. Further, traders avoided placing large bets in a truncated week, resulting in low volumes, dealers said.

 

Only two government bonds, the 7.26%, 2033 bond and 7.18%, 2033 bond, were traded in the secondary market. Money markets will be shut on Tuesday and Wednesday on account of Independence Day and Parsi New Year, respectively.

 

Despite a sharp rise in US Treasury yields, the fall in gilt prices was limited as traders exercised caution ahead of the release of domestic CPI data for July, due after market hours at 1730 IST.

 

"Even if the market expects the data to be on expected lines, it is obvious to not place huge bets before the event," a dealer at a private bank said. "Many traders have taken leaves for the long weekend."

 

According to the median of an Informist poll of 26 economists, the relentless rise in tomato prices is likely to have spiked India's CPI inflation to 6.5% in July, the highest in at least six months.

 

The market has largely factored a retail inflation print of 6.5%, dealers said. However, some traders are also factoring in a CPI inflation print of 7% for July. 

 

On the global front, US Treasury yields rose as producer price inflation for July was higher than economists' expectations. The producer price index rose 0.3% on month in July, the Bureau of Labor Statistics reported on Friday. This was the highest monthly increase since January. Meanwhile, the revised reading for June remained unchanged.

 

The yield on the benchmark 10-year US Treasury note rose to 4.17% in early trade from 4.11% at the end of Indian market hours on Friday.

 

According to data on the Reserve Bank of India's Negotiated Dealing System–Order Matching platform–the market-wide turnover was 20.75 bln rupees at 0928 IST compared with 55.10 bln rupees at 0930 IST on Friday.

 

During the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.19-7.23%. (Nishat Anjum)


India Gilts: Seen opening lower tracking sharp rise in US yields Fri

 

MUMBAI – Prices of government bonds are seen opening lower today tracking a sharp rise in US Treasury yields, dealers said. However, traders may refrain from placing aggressive bets on caution ahead of the India CPI data for July, scheduled to be released after market hours.


Today, yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.16-7.24% as against 7.20% on Friday.

 

According to the median of an Informist poll of 26 economists, the relentless rise in tomato prices is likely to have spiked India's CPI inflation to 6.5% in July, the highest in at least six months.

 

Meanwhile, yield on the benchmark 10-year US Treasury note rose to 4.18% from 4.11% at the end of Indian market hours 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.

 

US Treasury yields rose on Friday as producer price inflation for July was higher than economists' expectations. The producer price index rose 0.3% on month in July, the Bureau of Labor Statistics reported on Friday. This was the biggest monthly gain since January. Meanwhile, the revised reading for June remained unchanged.

 

Producer price index gauges the costs that goods and services producers receive for their products as opposed to those that consumers pay. Economists had expected producer prices to inch up by 0.2% on month, as compared to the 0.1% uptick originally reported for June.

 

Core producer price index, which excludes food and energy, also increased 0.3%, the biggest monthly increase since November, after falling 0.1% in June. On a yearly basis, the core PPI rose 2.4%, the lowest since January 2021.

 

Higher-than-expected producer price index prompted fears that the US Federal Reserve may keep the rates higher for longer. The CME FedWatch tool showed that 88.5% Fed fund futures traders are now expecting the Fed to maintain status quo in the September meeting, while the rest expect a 25-basis-point rate increase.

 

During the day, trade volume may remain dull as traders may avoid large bets in a truncated week, dealers said. Money markets will be shut on Tuesday and Wednesday, on account of Independence Day and Parsi New Year, respectively.  (Nishat Anjum)

 

End

 

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

 

Edited by Deepshikha Bhardwaj

 

 

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