Informist, Wednesday, Jul 13, 2022

By Aaryan Khanna

NEW DELHI – Government bond prices surged towards the end of the day as traders placed fresh bets that the Reserve Bank of India may take less aggressive policy tightening measures as inflation moderates, dealers said.

The 10-year benchmark 6.54%, 2032 bond settled at 94.61 rupees, or 7.34% yield, against 94.26 rupees or 7.39% yield on Tuesday.

Rate hikes in recent months and the likely abatement of inflation pressures may allow the RBI to adopt a more moderate monetary policy compared to its global peers, a banking industry source told Informist.

Moreover, a slump in Brent crude for September delivery under the key $100-a-bbl mark on Tuesday buoyed demand for domestic gilts. Fears of high imported inflation had eased following a correction in the prices of other commodities in recent weeks due to fears of a global economic downturn, dealers said.

Crude oil futures also plunged because of fresh COVID-19 curbs in top crude importer China, and as rising fears of global economic slowdown weighed on the demand outlook for fuels.

Earlier, stop-losses were triggered in the five-year overnight indexed swap rate due to the slump in crude prices, dealers said. As swap rates fell, investors stocked up on government securities.

"The momentum was already quite good since the morning, and the news of the RBI's policy stance added to the momentum at the end," a dealer at a private bank said.

The 5.74%, 2026 bond was the biggest gainer among on-the-run gilts, as its spread over the 5-year OIS rate soared above 50 basis points due to the slump in the swap contract, making it an attractive buy to hold to maturity, dealers said.

Dealers were wary of the rise in prices ahead of the 320-bln-rupee weekly gilt auction on Friday. The government has offered to sell 90 bln rupees of the 7.38%, 2027 gilt, 40 bln rupees of the 2028 floating rate bond, 100 bln rupees of the 7.54%, 2036 gilt, and 90 bln rupees of the 6.99%, 2051 gilt.

Concerns about the Centre's record gilt issuance in 2022-23 (Apr-Mar) had limited gains in gilt prices earlier, as investors demanded higher yields at two previous weekly gilt auctions.

Investors had booked profits on their portfolios, as the yield on the 10-year benchmark 6.54%, 2032 bond fell towards the 7.35% mark, but stepped up purchases after the report, dealers said.

Traders had also covered short bets after the June CPI inflation print, released after market hours Tuesday, came in along expected lines, aiding prices in early trade.

India's annual inflation rate based on CPI was 7.01% in June, flat compared with 7.04% the previous month. With this, the headline inflation rate has averaged 7.3% in Apr-Jun, 20 basis points lower than the Reserve Bank of India's projection for the June quarter.

"The market has priced in a lot of negativity, which is how these things go, but today was a positive news day that really kept the worries at bay for another day, before the US CPI print," a dealer at a primary dealership said.

The year-on-year US CPI is estimated to hit a fresh 40-year high of 8.8% in June, according to a Reuters poll.

OUTLOOK

On Thursday, government bond prices may take cues from the movement in US Treasury yields following the release of the US CPI inflation print after market hours today.

Gilt prices may remain under pressure due to concern that bond portfolios of investors may be nearing capacity, following muted demand for dated securities over the past two weekly gilt auctions, dealers said.

Traders may place short bets to make room for the weekly gilt auction on Friday. The government has offered to sell 90 bln rupees of the 7.38%, 2027 gilt, 40 bln rupees of the FRB 2028, 100 bln rupees of the 7.54%, 2036 gilt, and 90 bln rupees of the 6.99%, 2051 gilt.

Any overnight movement in crude oil prices may also lend early cues to domestic bonds.

The yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.30-7.38%.

India Gilts: Firm as 5-year OIS plunges; focus on auction Friday

NEW DELHI--1435 IST--Government bond prices remained firm as stop losses were triggered in the five-year overnight indexed swap rate following a sharp fall in crude prices oil on Tuesday, dealers said.

On Tuesday, Brent crude oil for September delivery fell below $100-a-barrel for the first time since April.

However, investors avoided stocking up further on the 10-year benchmark 6.54%, 2032 bond as its yield approached the 7.35% mark, dealers said.

Traders placed short bets in on-the-run gilts ahead of the 320-bln-rupee auction on Friday, which features the five- and 14-year benchmark gilts, dealers said.

Concerns about the Centre's record gilt issuance in 2022-23 (Apr-Mar) limited gains in gilt prices after investors demanded higher yields at two previous weekly gilt auctions.

"The pass through (from OIS) is limited in gilts as supply pressures are being factored in following the results of the last two weeks; they are trading at different levels," said a dealer with a private bank.

During the day, yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.34-7.42%. (Aaryan Khanna)

India Gilts: Rise as Brent below $100/bbl, CPI on expected lines
 

NEW DELHI--0930 IST--Prices of government bonds rose as Brent crude prices were below the psychologically-crucial $100-per-barrel mark and as India's CPI print for June came along expected lines at 7.01%, dealers said.

India's annual inflation rate based on CPI was 7.01% in June--flat compared with 7.04% the previous month--as a favourable base effect offset the impact of a sequential rise in vegetable prices. Inflation was seen at 7.0% in June, according to an Informist poll of 19 economists.  

The headline inflation rate averaged 7.3% in Apr-Jun, 20 basis points lower than the Reserve Bank of India's projection for the June quarter. It is also the sixth consecutive month when inflation has topped the upper band of the RBI's medium-term target range of 2-6%.

Crude oil futures fell on Tuesday because of fresh COVID-19 curbs in top crude importer China, and as rising fears of a global economic slowdown weighed on the demand outlook for fuels.

The Brent crude contract for September delivery ended at $99.49 per bbl on Tuesday as against $107.10 on Monday. The contract traded at $99.79 per bbl in Asian trade today.

A rise in US Treasury yields, however, weighed on bond prices, dealers said.

The yield on the 10-year benchmark US Treasury note ended at 2.96% on Tuesday, around 4 bps higher than the level at the close of Indian market hours. The yield rose to 3% in Asian trade today.

Moreover, traders placed short bets in the 10-year benchmark 6.54%, 2032 bond near the 7.35% yield level, which limited gains in bond prices, dealers said.

Investors avoided aggressive bets ahead of the release of the US CPI data for June, which could determine the pace of the US Federal Reserve's rate hikes, dealers said.

"There is still US CPI today, which is also keeping a sharp rise in prices in check," a dealer at a state-owned bank said. "Even with crude below $100 per bbl, the RBI is expected to hike rates by 50 bps in August."

During the day, yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.34-7.42%. (Shubham Rana)

India Gilts: Seen up as crude below $100/bbl, CPI on expected lines

NEW DELHI – Prices of government bonds are expected to rise at the opening of the trading session today as Brent crude prices fell below $100 per barrel on Tuesday, dealers said. CPI print for June, which came in line with expectations, may also support bond prices, they added.

The yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.33-7.42%, as against 7.39% on Tuesday.

India's annual inflation rate based on CPI was 7.01% in June, flat compared to 7.04% in the previous month, as a favourable base effect offset the impact of a sequential rise in the prices of vegetables. According to an Informist poll of 19 economists, inflation was seen at 7.0% in June.  

With this reading, the headline inflation rate has averaged 7.3% in Apr-Jun, 20 basis points lower than the Reserve Bank of India's projection for the June quarter.

Dealers are of the view that with inflation moderating and crude oil prices below the psychologically-crucial $100-per-bbl mark, the Reserve Bank of India may not look to hike rates aggressively in its August Monetary Policy Committee meeting.

Crude oil futures fell on Tuesday because of fresh COVID-19 curbs in top crude importer China, and as rising fears of global economic slowdown weighed on the demand outlook for fuels.

The Brent crude contract for September delivery ended at $99.49 per bbl on Tuesday, against $107.10 Monday. The contract traded at $99.79 per bbl in Asian trade today.

A rise in US Treasury yields, however, may limit the gains in bond prices today, dealers said.

The yield on the 10-year benchmark US Treasury note ended at 2.96% on Tuesday, around 4 basis points higher than the level at the close of Indian market hours. The yield rose to 3% in Asian trade today.

Investors may avoid aggressive bets ahead of the release of the US CPI data for June, which could determine the pace of the US Federal Reserve's rate hikes. Economists forecast that the year-on-year CPI will hit a fresh 40-year high of 8.8% in June, according to a Reuters poll. (Shubham Rana)

End

US$1 = 79.63 rupees

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

Edited by Avishek Dutta

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