Informist, Thursday, Aug 11, 2022

By Shubham Rana

NEW DELHI – Prices of government bonds ended sharply higher today because of short covering by traders ahead of the release of the India CPI inflation data for July, due after market hours on Friday, dealers said.

According to an Informist poll of 27 economists, India's retail inflation based on the Consumer Price Index is seen falling to a five-month low of 6.8% in July as food inflation is likely to have moderated.

The 10-year benchmark 6.54%, 2032 bond settled at 95.09 rupees, or 7.27% yield, against 94.81 rupees, or 7.31% yield on Wednesday.

"Inflation is expected to come down, so people are looking to cover short bets before the data comes on Friday," a dealer at a state-owned bank said. "Towards the end of trade today some people also booked profits which is why the prices came down from the day's highs."

Gilt prices rose in early trade today after the US CPI inflation print for July came in lower than expectations, boosting hopes that the US Federal Reserve may take a more benign path towards policy tightening, dealers said. 

US CPI rose 8.5% on year in July, down from a four-decade high of 9.1% in June. Analysts had expected a 8.6-8.8% rise.

According to the CME FedWatch tool, the possibility of a 75-basis-point hike at the policy review in September slumped to 37.5% from 68% before the CPI print, with the rest of the bets on a 50-bps increase.

The Fed's rate actions may lend cues to the Reserve Bank of India on the pace of policy tightening, even as dealers await the domestic CPI inflation data for July.

Some traders also placed short bets to make room for fresh supply at the 320-bln-rupee weekly gilt auction on Friday, dealers said.

The government has offered to sell 90 bln rupees of the 7.38%, 2027 gilt, 40 bln rupees of the 2028 floating rate bond, 110 bln rupees of the 7.54%, 2036 gilt, and 80 bln rupees of the 6.99%, 2051 gilt.

"Market should stay steady before the auction on Friday," a dealer at a primary dealership said. "We will have to see how the auction pans out and then traders may place bets before the CPI data release."

According to data on the RBI's Negotiated Dealing System – Order Matching platform, the market-wide turnover was 412.15 bln rupees compared with 242.35 bln rupees on Wednesday.

OUTLOOK

On Friday, prices of government bonds are seen steady on caution before the release of India's CPI data after market hours on Friday.

Some traders may place short bets to make space for the fresh 320-bln-rupee supply.

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 7.22-7.32%.

India Gilts: Up more as short sellers cover bets before India CPI Fri

NEW DELHI--1315 IST--Prices of government bonds rose further as short sellers covered their bets before the release of India CPI inflation print for July, due after market hours on Friday, dealers said.

According to an Informist poll of 27 economists, India's retail inflation based on the Consumer Price Index is seen falling to a five-month low of 6.8% in July as food inflation is likely to have moderated.

"This is sustained covering before the CPI release on Friday," a dealer at a private bank said. "Inflation is expected to come down from previous months which is a positive for the market as it may lead to the Reserve Bank of India hiking rates less aggressively going ahead." 

Prices surged earlier after US CPI data for July came in lower than expectations, boosting hopes that the US Federal Reserve may take a more benign path towards policy tightening, dealers said. US CPI rose 8.5% on year in July as against expectations of an 8.6-8.8% rise and lower than the 9.1% reading in June.

Traders placed short bets as the yield on the 10-year benchmark 6.54%, 2032 bond approached the psychologically-crucial 7.28% mark, making room for the 320-bln-rupee weekly gilt auction on Friday.

During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.21-7.29%. (Shubham Rana)

India Gilts: Rise as US inflation cools in Jul; India CPI print eyed

NEW DELHI--0955 IST--Prices of government bonds climbed after US inflation data for July came in softer than expected, raising hopes that the Federal Reserve might take a more benign path towards policy tightening, dealers said.

US CPI rose 8.5% on year in July as against expectations of an 8.6-8.8% rise. The increase in food prices remained high, but a fall in fuel prices offered some relief, keeping the index flat as against June.

The CPI inflation reading was lower than the four-decade high of 9.1% in June, softening the view on US interest rate hikes and offering a signal that inflation may be peaking across economies, dealers said.

Traders also await the release of India's July CPI inflation print, due after market hours on Friday, for further cues on domestic rates.

"US inflation is more like a breather right now, it remains very high," a dealer at a private bank said. "But the reading gives some sort of hope... a coordinated peaking of inflation around the world could keep rate hikes in check in the coming months."

Traders placed short bets as the yield on the 10-year benchmark 6.54%, 2032 bond approached the psychologically-crucial 7.28% mark, making room for the 320-bln-rupee weekly gilt auction on Friday.

During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.27-7.33%.  (Aaryan Khanna)

India Gilts: Seen up after US inflation relief; India CPI in focus

NEW DELHI – Government bond prices may open slightly higher because US inflation eased more than expected, reducing pressure on the US Federal Reserve to continue on its path of aggressive monetary policy tightening, dealers said.

The US labor department on Wednesday said CPI rose 8.5% on year in July, down from a four-decade high of 9.1% in June. Analysts had expected a 8.6-8.8% rise.

According to the CME FedWatch tool, the possibility of a 75-basis-point hike at the policy review in September slumped to 45% from 68% before the CPI print, with the rest of the bets on a 50-bps increase.

The yield on the 10-year benchmark US Treasury note fell under the 2.70% mark after the print, but ended off lows at 2.78% on Wednesday. Yields recovered after remarks from the heads of regional Federal Reserve banks suggested rate increases may persist into 2023.

Bonds maturing under five years may gain more than those as the short-term rate view in the US eases, dealers said. The yield on the two-year benchmark US note fell 5 bps against the 2 bps decrease in the 10-year benchmark US yield.

The Fed's rate actions are seen lending cues to the Reserve Bank of India on the pace of policy tightening, even as dealers await the domestic CPI inflation data for July, due after market hours on Friday.

India's retail inflation based on the Consumer Price Index is seen falling to a five-month low of 6.8% in July as food inflation is likely to have moderated last month, according to an Informist poll of 27 economists.

Meanwhile, traders may place short bets to make room for fresh supply at the 320-bln-rupee weekly gilt auction on Friday, even though bets are unlikely to be significant, dealers said.

The government has offered to sell 90 bln rupees of the 7.38%, 2027 gilt, 40 bln rupees of the 2028 floating rate bond, 110 bln rupees of the 7.54%, 2036 gilt, and 80 bln rupees of the 6.99%, 2051 gilt.

The yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.27-7.33% today, as against 7.31% on Wednesday.  (Aaryan Khanna)

End

US$1 = 79.64 rupees

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

Edited by Maheswaran Parameswaran

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