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India Gilts Review: Steady; profit booking knocks prices off highs

Informist, Wednesday, Aug 30, 2023

 

By Aaryan Khanna

 

NEW DELHI – Government bond prices ended little changed today as traders aggressively sold their bond holdings at a profit as the yield on the 10-year benchmark 7.26%, 2033 bond approached the key 7.15% mark early in the day, dealers said.

 

The 10-year benchmark 7.26%, 2033 bond closed at 100.50 rupees, or 7.19% yield, against 100.48 rupees, or 7.19%, on Tuesday. The bond's price rose to a high of 100.72 rupees at the opening. The 7.18%, 2033 bond closed at 100.18 rupees, or 7.15% yield, against 100.20 rupees, or 7.15%, the previous day.

 

Gilt prices had jumped early in trade tracking an overnight slump in US Treasury yields after data showed job openings in the US fell to their lowest level since March 2021, easing concerns of further monetary tightening in the world's largest economy. A softer-than-expected consumer sentiment also weighed on US Treasury yields.

 

The yield on the benchmark 10-year US Treasury note was at 4.13% in Asian trade compared with 4.22% when the Indian market closed on Tuesday. A fall in US Treasury yields widens the interest rate differential between the safe-haven asset and emerging market debt, making the latter more appealing to foreign investors.

 

In the US, the latest Job Openings and Labor Turnover survey released on Tuesday showed open listings declined to 8.8 mln in July from 9.2 mln in June. This marked the lowest level since March 2021. Economists polled by Reuters had forecast 9.46 mln job openings in July.

 

Meanwhile, US business research group Conference Board said its consumer confidence index came in at 106.1, much lower than a Dow Jones estimate of 116. It also said average inflation expectations for the next 12 months increased, pressuring overall confidence, while short-term outlook for income, business and labour market conditions declined.

 

Mutual funds, which had stocked up on gilts, opted to take profits at the psychologically crucial level on the 10-year benchmark gilt. Moreover, short covering was muted and could not spur prices upward due to a reduced quantum of short bets in the 7.26%, 2033 paper after the introduction of the 7.18%, 2033 bond, dealers said.

 

"There has been a lot of interest from mutual funds and corporates to square off their positions at the levels we saw in the morning," a dealer at a state-owned bank said. "People have shrugged off the transient cues and are looking for big triggers to break the 7.15-7.25% range."

 

Some traders were disappointed at the muted reaction to the fall in US Treasury yields, and steadily trimmed their holdings during the day as the optimism on the US rate view failed to entice institutional buyers, dealers said. The 10-year Treasury yield also ticked up to 4.15% by the end of market hours, adding to investor caution ahead of a packed data calendar in the US and India.

 

After outperforming the 7.26%, 2033 bond over the last two days, traders speculated that lack of interest from mutual funds in the recently-issued 7.18%, 2033 bond today made it lag its peer, dealers said. The lack of a robust short-selling mechanism in the newer bond, which was first issued earlier this month, kept the paper afloat as most of the short bets were covered by the end of the day, dealers said.

 

The 7.18%, 2037 bond was also out of favour among on-the-run gilts in the run-up to the gilt auction on Friday where it is featured this week. With the largest investors over the past week booking profits, there was no incremental demand from insurers for the gilt in the secondary market, and pension funds may also opt for the bond only at the debt sale, dealers said.

 

The government has offered to sell 80 bln rupees of the 6.99%, 2026 bond; 70 bln rupees of the 7.17%, 2030 bond; 120 bln rupees each of the 7.18%, 2037 bond and the 7.25%, 2063 bond at the auction.

 

State-owned banks were speculated to be selling bonds maturing in the 10- to 14-year segment today while opting for bonds maturing in three to seven years. These bonds were a better fit to match their liabilities while also offering higher returns due to the marginal inversion in the yield curve, with the view over the next year that interest rates would remain higher for longer, dealers said.

 

The lack of volume in these bonds, as well as the upcoming issuance of the 6.99%, 2026 and the 7.17%, 2030 bond, limited aggressive bets, dealers said. 

 

In addition to the US data, traders geared up for domestic economic indicators due on Wednesday. The government's statement of fiscal accounts for Apr-Jul is due during market hours, and the National Statistical Office will publish the first estimate for India's Apr-Jun GDP growth at 1730 IST.

 

India's economy is likely to have expanded 7.8% in Apr-Jun, the most in four quarters, as robust domestic demand propelled growth in services activity, according to a poll of 22 economists by Informist.

 

On the other hand, headline CPI inflation is also expected to come above 7% in August, after hitting a 15-month high of 7.44% in July. These readings would not lend any triggers for a change in interest rate view, which currently had bet on a status quo at 6.50% by the Monetary Policy Committee until at least Jul-Sep 2024.

 

"What this shows, is a lack of confidence to believe the range will break on global cues, keeping all your positions intraday," a dealer at a primary dealership said. "All the data coming up – high GDP, high inflation – has already been priced in, so the market should ideally break the range since global factors are turning positive."

 

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the turnover today was 399.35 bln rupees, compared with 457.05 bln rupees on Tuesday. Meanwhile, there were no trades with the digital rupee today.

 

OUTLOOK

On Thursday, gilts are seen opening steady on caution ahead of a slew of macroeconomic data in India and the US, dealers said.

 

Data released after market hours showed the second estimate for US GDP growth in Apr-Jun, at 2.1%, was lower than the advance estimate of 2.4%, easing the room that the US Federal Reserve was seen to have on hiking interest rates.

 

Traders will now look ahead to the US personal consumption expenditures price index print for July, due on Thursday, and the non-farm payrolls report for August due on Friday, as these may provide insight into further US monetary policy action, dealers said.

 

On the domestic front, India's GDP data for Apr-Jun will be keenly watched, dealers said.

 

The second estimate of US Apr-Jun GDP data may lend cues to US Treasury yields overnight, which could influence the market at the open. A sharp move in crude oil prices could also be a trigger for gilt prices.

 

The yield on the 10-year benchmark 7.26%, 2033 bond is seen in a range of 7.14-7.20%.

 

 

Today

 Tuesday

Price

Yield

Price

Yield

7.26%, 2033

100.50007.1850%100.48007.1880%

7.18%, 2033

100.17507.1544%100.20007.1509%
7.17%, 203099.88007.1907%99.95507.1763%
7.18%, 203799.41007.2469%99.42007.2457%
7.06%, 202899.52007.1813%99.51007.1839%

 


India Gilts: Erase most gains; fall in US yields keeps bonds afloat

 

 1515 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS
07.26%, 2033 
PRICE (rupees)100.54100.72100.52100.70100.48
YTM (%)      7.17917.15277.18287.15567.1880

 

 1515 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS
7.18%, 2033
PRICE (rupees)100.23100.44100.20100.40100.20
YTM (%)      7.14667.11767.15097.12227.1509

 

MUMBAI–1515 IST–Government bonds erased most gains as traders sold their gilt holdings at a profit, dealers said. Overnight fall in US Treasury yields kept the gilts afloat. 

 

"The movement in prices today has been similar to yesterday," a dealer at a state-owned bank said. "With more data lined up this week, one can't predict where US yields will go."

 

After the rise in gilt prices in initial trade, traders sold their gilt holdings at a profit, dealers said. The market now awaits more data from US for further clarity on the interest rate trajectory. 

 

The yield on the benchmark 10-year US Treasury note was at 4.15% compared with 4.22% at the time of Indian market close on Tuesday. US Treasury yields fell on Tuesday after data showed job openings in the country fell to their lowest level since March 2021, and consumer sentiment was weaker than expected in the world's largest economy. 

 

US's Apr-Jun second estimate GDP is due after market hours today. Meanwhile, on the domestic front, June quarter GDP will be released on Thursday.

 

According to a poll of 22 economists by Informist, India's economy is likely to have expanded 7.8% in Apr-Jun, the most in four quarters, as robust domestic demand propelled growth in services activity.

 

"Mostly the market will be driven by US data. If our GDP is drastically different from market expectations or the Reserve Bank of India's prediction, then only we may move sharply. Though, I do think that it will be a non-event," a dealer at another state-owned bank said.

 

According to data on the Reserve Bank of India's Negotiated Dealing System–Order Matching platform–the market-wide turnover was 313.70 bln rupees at 1515 IST compared with 340.60 bln rupees at 1530 IST on Tuesday.
 

For rest of the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.15-7.19%.  (Nishat Anjum)


India Gilts: Off highs as traders trim holdings at profit

 

 1300 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS
07.26%, 2033 
PRICE (rupees)100.54100.72100.52100.70100.48
YTM (%)      7.17917.15277.18217.15567.1880

 

 1300 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS
7.18%, 2033
PRICE (rupees)100.20100.44100.20100.40100.20
YTM (%)      7.15097.11767.15097.12227.1509

 

NEW DELHI–1300 IST–Government bond prices were off highs as traders trimmed their bond holdings at a profit, while investors avoided stocking up on government paper due to caution ahead of a packed week of economic data in the US, dealers said.

 

Traders were also not keen to add the 7.26%, 2033 bond to their portfolios below the key 7.15% yield levels, dealers said.

 

Prices remained higher tracking a fall in US Treasury yields after job openings in July fell to their lowest level since March 2021, and consumer sentiment was weaker than expected in the world's largest economy. The yield on the benchmark 10-year US Treasury note was at 4.15% compared with 4.22% at the time of Indian market close on Tuesday.

 

However, the monthly jobs data for August, due later this week, is not expected to show a significant weakening of the US labour market, dealers said. Domestic dealers also feared the possibility of another rate hike in the US in the remainder of 2023.

 

Traders remained on the sidelines ahead of the US data and avoided aggressive bets due to a lack of significant domestic cues. The second revision of US GDP for Apr-Jun, scheduled after market hours, is also being keenly watched, dealers said.

 

"There is some deployment of government spending that will happen in T-bills (Treasury bills), but mutual funds have fallen off the buying side, so there is nobody to test levels on the lower side," a dealer at a private bank said.

 

The Reserve Bank of India auctioned 100 bln rupees of 91-day T-bills, 80 bln rupees of 182-day T-bills and 60 bln rupees of 364-day T-bills at 1030-1130 IST. Banks typically pick up paper maturing in 182-364 days, with the 91-day T-bill typically the domain of mutual funds looking to deploy excess cash.

 

Some traders were keen on placing bets that the 7.26%, 2033 bond would outperform the 7.18%, 2033 bond. The lack of a robust short-selling mechanism in the newer bond – which was first issued earlier this month – kept the paper afloat as most short bets were intraday, dealers said.

 

On the other hand, a lack of outsized buys from mutual funds or foreign investors, as had been speculated over the last two days, capped gains in the 7.18%, 2033 and limited the difference in yield between this paper and the outgoing benchmark 7.26%, 2033 bond, dealers said.

 

According to data on the Reserve Bank of India's Negotiated Dealing System–Order Matching platform–the market-wide turnover was 245.70 bln rupees compared with 245.45 bln rupees at 1300 IST on Tuesday.
 

During the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.15-7.19%.  (Aaryan Khanna)


India Gilts: Rise tracking sharp fall in US Treasury yields

 

 0930 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS
07.26%, 2033 
PRICE (rupees)100.65100.72100.64100.70100.48
YTM (%)      7.16297.15277.16527.15567.1880

 

 0930 IST  PRICE HIGH  PRICE LOW       OPEN    PREVIOUS
7.18%, 2033
PRICE (rupees)100.35100.44100.32100.40100.20
YTM (%)      7.12967.11767.13387.12227.1509

 

MUMBAI–0930 IST–Prices of government bonds rose today tracking a slump in US Treasury yields, dealers said. Gains in short-term bonds were limited as liquidity conditions remain tight, which has been the case for over a week.

 

Liquidity conditions have improved slightly but are still below the comfort level, dealers said. Liquidity in the system was estimated to be in surplus of 412.84 bln rupees, higher than 260.16 bln rupees on Tuesday. 

 

Yield on the 7.26%, 2033 bond touched the 7.15% level in early trade, but soon rose back as traders sold bonds at profit around those levels considered lucrative, dealers said.

 

"There is good resistance at 7.15% (on the benchmark 7.26%, 2033 bond). There would be one more round of profit booking if it goes to 7.15%," a dealer at a private bank said. "If only US yields fall more in European trade, then may be we will see lower levels back home."

 

The yield on the benchmark 10-year US Treasury note was at 4.14% in early trade compared with 4.22% at the time of Indian market close on Tuesday.

 

US Treasury yields fell on Tuesday after data showed job openings in the country fell to their lowest level since March 2021, and consumer sentiment was weaker than expected in the world's largest economy. 

 

In the US, the latest Job Openings and Labor Turnover survey showed open listings declined to 8.8 mln in July from 9.2 mln in June. Meanwhile, consumer confidence index came in at 106.1, much lower than a Dow Jones estimate of 116.

 

For more cues, the market awaits the US Apr-Jun second estimate of GDP, dealers said. Back home, the GDP for the June quarter is due after market hours on Thursday.

 

According to a poll of 22 economists by Informist, India's economy is likely to have expanded 7.8% in Apr-Jun, the most in four quarters, as robust domestic demand propelled growth in services activity.

 

According to data on the Reserve Bank of India's Negotiated Dealing System–Order Matching platform–the market-wide turnover was 64.05 bln rupees at 0938 IST compared with 54.40 bln rupees at 0930 IST on Tuesday.
 

During the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.15-7.19%.  (Nishat Anjum)


India Gilts: Seen opening higher as US yields slump post econ data

 

MUMBAI – Prices of government bonds are seen opening higher tracking a sharp fall in US Treasury yields, dealers said. US Treasury yields fell on Tuesday after data showed job openings in the country fell to their lowest level since March 2021, and that consumer sentiment was weaker than expected in the world's largest economy. 

 

Today, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.15-7.21% as against 7.19% on Tuesday.

 

The yield on the benchmark 10-year US Treasury note was at 4.13% in Asian trade compared with 4.22% at the time of Indian market close on Tuesday. A fall in US Treasury yields widens the interest rate differential between the safe-haven asset and emerging market debt, making the latter more appealing to foreign investors.

 

In the US, the latest Job Openings and Labor Turnover survey released on Tuesday showed open listings declined to 8.8 mln in July from 9.2 mln in June. This marked the lowest level since March 2021. Economists polled by Reuters had forecast 9.46 mln job openings in July. 

 

Meanwhile, US business research group Conference Board said its consumer confidence index came in at 106.1, much lower than a Dow Jones estimate of 116. It also said average inflation expectations for the next 12 months increased, pressuring overall confidence, while short-term outlook for income, business and labour market conditions declined.

 

This instilled hope that the US Federal Reserve may not hike rates any further. The data also reaffirmed expectations that the rate-setting panel will keep interest rates unchanged at its September policy meeting.

 

According to the CME FedWatch Tool, close to 11% of Fed future traders expect a hike of 25 basis points at the September policy review, while others expect the rates to remain unchanged at 5.25-5.50%. 

 

During the day, the market may closely track the movement in US Treasury yields as no major event or data is lined up on the domestic front.

 

The yield on the benchmark 2033 bond may not sustainably fall below 7.15% yield as those are lucrative yield levels to buy, dealers said. Moreover, there are other data due this week, so the market may show some caution. The US Apr-Jun second estimate of GDP is due at 1800 IST today, while India's Apr-Jun GDP is scheduled to be released on Thursday after market hours. (Nishat Anjum)

 

End

 

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

 

Edited by Ashish Shirke

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

 

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