Informist, Friday, Jul 29, 2022

By Shubham Rana

NEW DELHI – Prices of government bonds ended off the day's highs because traders booked profits after a sharp rise early in the day and as they avoided stocking up on gilts noting a rise in crude oil prices, dealers said.

The 10-year benchmark 6.54%, 2032 bond settled at 94.74 rupees or 7.32% yield, against 94.66 rupees or 7.33% on Thursday.

Bond prices also gave up gains after the Reserve Bank of India devolved 17.40 bln rupees of the 2028 floating rate bond on underwriters even as the rest of the auction sailed through along expected lines, dealers said.

"The auction result was on expected lines, but underwriters did offload the devolved stock, which weighed on prices," a dealer at a state-owned bank said. "Traders stocked up on gilts early too enthusiastically and later had to trim their holdings as crude started to rise today." 

The government had 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.

Gilt prices rose earlier in the day because traders stocked up on gilts as the rate hike view in the US and in India softened after the US GDP contracted for the second quarter in a row, plunging into a technical recession in the June quarter, dealers said.

The US GDP contracted 0.9% on year in Apr-Jun, following a 1.6% contraction in the quarter ended March. A recession is technically defined as a period of two consecutive quarters of annualised decrease in GDP.

A slump in the US Treasury yields after the GDP data on Thursday also supported domestic gilt prices. The yield on the 10-year benchmark US Treasury note slumped 8 basis points to 2.68% on Thursday and stayed close to that level in the Asian trade today.

During the day, crude oil prices rose as focus turned to next week's meeting of the Organization of the Petroleum Exporting Countries and its allies with expectations that it will bring down US hopes for an increase in supply.

Brent crude for October delivery surged nearly 2% from Thursday's close of $101.83 a barrel, which weighed heavily on bond prices.

Typically, a rise in crude oil prices increases the risk of imported inflation in India, putting pressure on the RBI to withdraw monetary policy accommodation.

"People wanted to buy gilts in early trade but as the day progressed most people were looking to sell them, this just shows how uncertain the gilts market is right now," a dealer at a primary dealership said.

According to data on RBI's Negotiated Dealing System – Order Matching platform, the market-wide turnover was 408.70 bln rupees, compared with 358.15 bln rupees on Thursday.

OUTLOOK

Gilts are not traded on Saturdays.

On Monday, government bond prices are seen opening steady on caution ahead of the Reserve Bank of India's Monetary Policy Committee meeting later in the week.

Any 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 7.28-7.36%.

India Gilts: Off highs after auction devolvement; crude surge weighs

NEW DELHI--1450 IST--Prices of government bonds fell off highs after the result of the 320-bln-rupee weekly gilt auction, as the Reserve Bank of India devolved 17.40 bln rupees of the floating rate bond on underwriters. A surge in crude oil prices also dented the demand at elevated prices, dealers said.

The rest of the auction sailed through along expected lines. As primary dealers were stuck with the illiquid 2028 bond, they placed short bets in on-the-run gilts, dealers said.

"The market should now trade at the 7.27-7.33% level (on the 10-year benchmark yield), as short covering ceased in the morning and technical levels couldn't be broken," a dealer at a primary dealership said. "The gains have been steady during this week and the underlying sentiment is still quite positive."

Government bonds were in favour earlier in the day as the rate hike view in the US and India softened over the medium-term after the US GDP contracted for the second straight quarter for Apr-Jun.

However, traders were wary of stocking up on gilts ahead of the weekend as Brent crude for October delivery surged nearly 2% from Thursday's close. Overnight indexed swap rates were off lows as traders paid fixed rates to protect their underlying gilt holdings, dealers said.

During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.27-7.34%. (Aaryan Khanna)

India Gilts: Pare some gains on profit booking, rise in crude weighs

NEW DELHI--1330 IST--Prices of government bonds gave up some gains because traders booked profits after the surge in prices earlier today, dealers said. Some traders also made space for fresh supply before the result of the 320-bln-rupee weekly auction. 

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.

There were firm demand for gilts at the auction today and cut-offs are expected to be set near the current market levels, dealers said. However, dealers were jittery about the demand for the 2028 floating rate bond.

A rise in crude oil prices also led to a fall in gilt prices from the day's highs, dealers said. The Brent crude contract for October delivery rose over 1% today against Thursday's close of $101.83 per barrel.

"The rise in prices in the morning was overdone, so people are just booking profits," a dealer at a private bank said. "Crude has also come up from where it was in the morning so that is also weighing."

Gilt prices remained sharply higher from Thursday's closing levels because traders stocked up on gilts as the rate hike view in the US and in India softened after the US GDP contracted for the second quarter in a row, plunging into a technical recession in the June quarter, dealers said.

The US GDP contracted 0.9% on year in Apr-Jun, the Department of Commerce said on Thursday, following a 1.6% contraction in the quarter ended March. A recession is technically defined as a period of two consecutive quarters of annualised decrease in GDP.

A slump in the US Treasury yields after the GDP data on Thursday also supported domestic gilt prices.

The yield on the 10-year benchmark US Treasury note slumped 8 basis points to 2.68% on Thursday and stayed close to that level in the Asian trade today.

During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.25-7.34%. (Shubham Rana)

India Gilts: Surge as US yields slump after weak Apr-Jun GDP data

NEW DELHI--0945 IST--Government bond prices surged tracking a slump in US Treasury yields after data showed that the US GDP contracted unexpectedly in Apr-Jun, dealers said.

The world's largest economy fell into a technical recession after shrinking at an annual rate of 0.9% in Apr-Jun, having contracted 1.6% on year in the preceding quarter. A poll of economists by The Wall Street Journal had estimated that the US GDP would grow at a 0.3% annual pace in the June quarter.

The yield on the 10-year benchmark US Treasury note fell 8 bps to 2.68% on Thursday.

The US Federal Reserve is now unlikely to raise rates after the end of this calendar year, easing pressure on the Reserve Bank of India to tighten monetary policy aggressively, dealers said.

"The upside in domestic yields is now limited, and risk-off sentiment has not taken over completely as our inflation is in a relatively better position than developed economies," a dealer at a private bank said.

"If growth and inflation both collapse in developed markets, yields here should rise as exports, which are propping up our growth, slow down," the dealers said.

Investors booked profits as the yield on the 10-year benchmark bond approached the psychologically-crucial 7.25% mark, dealers said.

Market participants eyed the result of the 320-bln-rupee weekly gilt auction today, and the RBI's comments at the upcoming policy review next week, for cues, 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.

Traders were jittery about demand for the floating rate bond as rate hike expectations had peaked and were now ebbing, with bonds of fixed coupons likely to offer better returns, dealers said.

During the day, yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.25-7.34%. (Aaryan Khanna)

India Gilts:Seen up as US enters recession, ylds slump; auction eyed

NEW DELHI – Government bond prices are seen higher tracking a slump in US Treasury yields as the world's largest economy contracted for the second quarter in a row, plunging into a technical recession in the June quarter, dealers said.

US GDP contracted 0.9% on year in Apr-Jun, the Department of Commerce said on Thursday, following a 1.6% contraction in the quarter ended March. A recession is technically defined as a period of two consecutive quarters of annualised decrease in GDP.

The yield on the 10-year benchmark US Treasury note slumped after the US GDP data, as investors favoured the haven asset amid economic uncertainty. The benchmark yield fell 8 basis points to 2.68% on Thursday.

Short-term yields in the US slid even more as rate hike expectations beyond the end of 2022 collapsed following the data, and comments by US Federal Reserve Chair Jerome Powell following the policy review earlier this week.

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

An economic downturn in developed economies is seen aiding demand for domestic gilts as commodity prices ease and US Treasury yields fall, even if the Fed continues hiking rates, dealers said.

Gilts maturing in under five years may rise more than those with longer maturities as fears of sharp rate hikes in the coming months have eased, dealers said.

However, gains may be limited on caution ahead of the 320-bln-rupee weekly gilt auction today. Demand is seen firm at the auction after the positive global cues, 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 floating rate bond is expected to remain out of favour with traders as rate hike expectations top out, dealers said. The Reserve Bank of India has devolved 39.22 bln rupees of the 2028 bond on underwriters over its last two auctions.

Yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.27-7.35%, as against 7.33% on Thursday.  (Aaryan Khanna)

End

US$1 = 79.25 rupees

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

Edited by Shirsha Thakur

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