Informist, Thursday, Jul 20, 2023

By Nishat Anjum and Aaryan Khanna

MUMBAI/NEW DELHI – Prices of government bonds ended slightly lower today due to a rise in US Treasury yields in European trade. However, the impact of these cues on the domestic market was muted as no major data or events were lined up, dealers said.

The 10-year benchmark 7.26%, 2033 bond closed at 101.21 rupees, or 7.08% yield, against 101.25 rupees, or 7.08% yield, on Wednesday.

The yield on the 10-year benchmark US Treasury note rose 4 basis points from Wednesday's settlement to hit 3.79% at the end of Indian market hours. Global investors were cautious ahead of a slew of economic data later today, including on initial jobless claims in the US, with short-term US Treasury yields rising even more.

The impact of offshore cues was absorbed by the overnight indexed swap rate market, rather than India's government bonds, dealers said. Gilt prices moved within a narrow band throughout the day, centred around the previous close. 

Traders were also cautious ahead of the US Federal Open Market Committee's rate decision next week, dealers said.

"Domestic market does not have any new data or event to track," a dealer at a state-owned bank said. "Expect this kind of movement till the FOMC, and even after that if Fed does not surprise on any front. I expect the 7.05-7.10% (yield on 7.26%, 2033 bond) to be maintained for a longer time."

At the US rate-setting panel's two-day meeting starting Tuesday, the market largely expects the Fed to hike its policy rate by 25 basis points, taking it to 5.25-5.50%, dealers said. Moreover, traders were optimistic that after the July meeting, Fed may not hike rates this year as inflation in the US shows signs of cooling off.

The US CPI for June came in at 3.0% on year, lower than the 3.1% expected by economists in a Dow Jones poll. It marked the smallest annual increase since March 2021. The CPI print was at 4.0% in May. 

On the off chance that the Fed fails to deliver on the expectations or remains vigilant and data dependent, domestic traders still do not see the risk of another rate hike back home, dealers said.

The Reserve Bank of India would rather control liquidity through tools like variable rate reverse repo than hiking rates further, dealers said. However, if the Fed sees a continuation of tight monetary policy conditions, the rate cuts back home may be pushed further back.

Currently, the earliest rate cut in India is seen in February.

Among on-the-run gilts, the five-year 7.06%, 2028 bond fell the most, tracking a rise in five-year overnight indexed swap rates, dealers said. The five-year swap rate rose to 6.30% from 6.26% on Wednesday. 

"The market can't decide where to go from here, whether to 7.05% or 7.10% (yield on the 10-year, 2033 bond). Middle is where they are finding comfort," a dealer at a private bank said. "Before this, traders were more comfortable with the 5-year bonds, but now it looks like the paying in the five-year swaps triggered a sell-off in the five-year bonds as well,"

Moreover, some traders placed short bets ahead of the 310-bln-rupee auction on Friday, which weighed on gilts, dealers said.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the turnover today was 357.60 bln rupees, compared with 488.15 bln rupees on Wednesday.

No trades were settled with the digital rupee.

OUTLOOK

On Friday, government bonds may open steady as traders may avoid aggressive bets due to caution ahead of the weekly gilt auction, dealers said. At the auction, the government will sell 70 bln rupees of the 7.17%, 2030 bond; 120 bln rupees of a new 2037 bond; and 120 bln rupees of the 7.25%, 2063 bond.

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

The yield on the 10-year benchmark 7.26%, 2033 bond is seen in a range of 7.05-7.12%.

India Gilts: In thin band as traders cautious ahead of FOMC Jul meet

NEW DELHI--1505 IST--Prices of government bonds remained in a thin band as traders maintained caution ahead of the US Federal Open Market Committee's rate decision next week, dealers said.

Traders were also hesitant of placing large short bets ahead of the 310-bln-rupee auction on Friday as they feared that the Federal Reserve may suggest an end to its monetary policy tightening after delivering a 25-basis-point hike on Jul 26, which would cause domestic gilt prices to rise, dealers said.

According to the CME's FedWatch tool, a whopping 99.8% of Fed fund futures traders expect the US rate-setting panel to hike the federal funds rate by 25 bps next week.

While a hike of 25 bps is already factored in by the market, traders keenly await the Fed's forward guidance. Bets of the Fed not hiking rates any further after July ramped up after the US CPI data for June came in lower than market expectations, dealers said.

Some traders expected a higher cut-off price on the new 14-year 2037 bond to be issued at Friday's auction, which also kept them from trimming their holding of the existing 14-year benchmark 7.41%, 2036 paper, dealers said.

"People believe the cut-off on the new 14-year paper could be 4-5 bps better, somewhere around 7.11-7.12% (coupon on the new 2037 paper). So they don't want to leave this one (7.41%, 2036 bond)," a dealer at a private bank said.

Today, the new 14-year, 2037 gilt was quoted at 7.14-7.20% in the when-issued trade segment.

The government will sell 70 bln rupees of the 7.17%, 2030 bond; 120 bln rupees of a new 2037 bond; and 120 bln rupees of the 7.25%, 2063 bond at the auction. 

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 260.60 bln rupees at 1505 IST, compared with 381.20 bln rupees at 1500 IST on Wednesday.

For the rest of the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.06-7.10%. (Kasthuri Akhil)

India Gilts: Little changed due to lack of firm cues; volume low

MUMBAI--1237 IST--Prices of government bonds remained in a thin band as traders refrained from placing aggressive bets due to lack of firm domestic and global cues, dealers said. Trade volume also remained low in most of the on-the-run gilts.

"We are waiting for Europe to open, so we can do some trade tracking the US Treasury yields," a dealer at a primary dealership said. "Anyway, on the domestic front we have nothing but caution. In my opinion, we should not move sharply during the day."

This week, government securities tracked US Treasury yield movement closely ahead of the US Federal Reserve's policy review next week. However, the yield on the benchmark 10-year US Treasury note remained steady, at 3.77% as against 3.76% at the time of Indian market close on Wednesday, failing to give any fresh cues to the domestic market.

The gilt market also disregarded an increase in the overnight indexed swaps, which has not been the case for the last three trading sessions. The five-year swap rate rose to 6.29% from 6.26% on Wednesday. Since Monday, domestic traders unwound their bets in swap rates tracking the flows from offshore traders, dealers said. However, with US Federal Open Market Committee meeting next week and US Treasury yields largely unchanged overnight, traders avoided taking cues from OIS rates.

In the Fed meeting on Jul 25-26, the market widely expects the US rate-setting panel to hike the federal funds rate by 25 basis points, dealers said. Moreover, traders seem optimistic that after the July meeting, Fed may not hike rates this year as the US economy shows signs of cooling off.

Even if the Fed fails to deliver on the expectations or remains vigilant and data dependent, widely the domestic market do not see it translating into another hike back home. The Reserve Bank of India would rather control the liquidity through tools like variable rate reverse repo than hiking rates further, dealers said.

Moreover, if the Fed sees a continuation of tight monetary policy conditions, then the rate cuts back home may be pushed further ahead, dealers said.

Some traders placed short bets ahead of the 310-bln-rupee auction on Friday, which weighed on gilts, dealers said. The government will sell 70 bln rupees of the 7.17%, 2030 bond; 120 bln rupees of a new 2037 bond; and 120 bln rupees of the 7.25%, 2063 bond at the auction. 

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 127.15 bln rupees at 1237 IST compared with 207.55 bln rupees at 1230 IST on Wednesday.

For rest of the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.05-7.10%.  (Nishat Anjum)

India Gilts: Steady as market lacks significant domestic cues

India Gilts: Steady as market lacks significant domestic cues

NEW DELHI--0930 IST--Prices of government bonds were steady as traders avoided placing aggressive bets due to the lack of significant cues in the domestic market, dealers said.

"The market is slightly in a bearish zone. We can see the journey towards 7.09% (yield on the 10-year benchmark 2033 bond) is on," a dealer at a primary dealership said. "Now, the market will take cues from the Fed (US Federal Reserve's policy review meeting) next week."

Traders keenly await the Federal Open Market Committee's rate decision on Jul 26, hoping it will provide an impetus to the domestic market which has been devoid of fresh triggers for a while now, dealers said. According to the CME's FedWatch tool, 99.8% of Fed fund futures traders expect the US rate-setting panel to hike the federal funds rate by 25 basis points next week. 

A hike of 25 bps is already factored in by the market, but traders keenly await the Fed's forward guidance. They hope the Fed will end its policy tightening cycle after a hike this month, especially as the US CPI data for June came in lower than market expectations, dealers said.

The US CPI for June came in at 3%, lower than the 3.1% expected by economists in a Dow Jones poll. It marked the smallest annual increase since March 2021. The CPI print was at 4.0% in May. 

During the day, domestic gilt prices may be weighed down by short bets that traders are expected to place ahead of the 310-bln-rupee auction on Friday, dealers said. The government will sell 70 bln rupees of the 7.17%, 2030 bond; 120 bln rupees of a new 2037 bond; and 120 bln rupees of the 7.25%, 2063 bond at the auction.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 29.95 bln rupees at 0930 IST compared with 61.15 bln rupees at 1000 IST on Wednesday.

During the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.05-7.10%.  (Kasthuri Akhil)

India Gilts: Seen steady on lack of firm cues in domestic market

NEW DELHI – Prices of government bonds are seen opening steady as the domestic market lacks significant cues for traders to place aggressive bets on, dealers said.

Today, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.05-7.12% as against 7.08% on Wednesday.

During the day, traders may place short bets ahead of the weekly gilt auction on Friday, dealers said. The government will sell 70 bln rupees of the 7.17%, 2030 bond; 120 bln rupees of a new 2037 bond; and 120 bln rupees of the 7.25%, 2063 bond at the auction.

Bonds may track overnight indexed swap rates, as has been the case this week. Traders expected the paying momentum in the OIS market to continue, which may weigh on gilt prices. However, the movement may be subdued as traders may avoid placing large bets amid caution ahead of the upcoming Federal Open Market Committee's meeting on Jul 25-26, which is expected to provide some direction to the domestic market, dealers said.

According to the CME's FedWatch tool, 99.8% of Fed fund futures traders expect the US rate-setting panel to hike the federal funds rate by 25 basis points next week. The market also keenly awaits commentary by Federal Reserve Chair Jerome Powell to gain insight into the future course of policy action by the US central bank, dealers said. (Kasthuri Akhil)

End

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

Edited by Avishek Dutta

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