Informist, Thursday, Aug 4, 2022

By Aaryan Khanna

NEW DELHI – Government bond prices jumped today after Informist exclusively reported that the Reserve Bank of India's Monetary Policy Committee may consider a pause on rate hikes after the policy outcome on Friday, dealers said.

The rate-setting panel won't try to match the actions of some other central banks such as the US Federal Reserve, and may turn data-dependent, the source said.

Today, the 10-year benchmark 6.54%, 2032 bond settled at 95.81 rupees, or 7.16% yield, as against 95.25 rupees, or 7.24% yield, on Wednesday. The benchmark yield is at its lowest level since May 2, before the off-cycle repo rate increase of 40 basis points in May.

Traders now expect the committee to hike the repo rate, currently at 4.90%, by 25-35 bps to reach the pre-pandemic level of 5.15%, dealers said.

In the run-up to the policy, the rate hike view had moderated to 35 bps from 50 bps earlier as commodity prices eased and inflation was seen having peaked in the quarter ended June.

"People were just waiting for an assurance on the rate view moderation, which led to the sharp upward momentum when the news hit," a dealer at a primary dealership said.

Investors avoided stocking up on gilts as the 10-year benchmark yield approached the key 7.15% mark, awaiting the policy outcome, dealers said.

"The 7.15% (yield on the 10-year benchmark) is a strong technical level, so traders would have trimmed some of their overbought positions and booked profits," the dealer said.

Informist also exclusively reported that the RBI may stand pat on its growth and inflation projections for 2022-23 (Apr-Mar), quoting a banking source.

The expected relief on the rate view led gilt prices to surge in the latter half of the day, after tepid trade in the first half.

Bond prices had risen at the beginning of trade tracking a sharp overnight fall in crude oil prices.

Crude oil futures slumped around 4% on Wednesday to almost six-month low after US data showed crude and petrol stockpiles unexpectedly surged last week.

US crude stocks rose by 4.5 mln barrels last week, compared with expectation of a draw of 600,000 barrels. Gasoline stocks also gained by 200,000 barrels, against expectation for a 1.6 mln barrel fall.

The Organization of the Petroleum Exporting Countries and allies said it would raise its oil output target by 100,000 barrels per day at the outcome of its monthly meeting, but the decision had little impact on crude prices.

However, traders pared the early gains on caution before the policy outcome, with trade volumes muted before the reports, as traders had already placed bets in the week, dealers said.

"The market was loathe to position aggressively on a fall in crude before the policy (outcome)," a treasury head at a private bank said. "Current market prices are geared for something closer to a 35-bps rate hike rather 50 bps."

According to data on the central bank's Negotiated Dealing System – Order Matching platform, the market-wide turnover was 472.30 bln rupees compared with 249.40 bln rupees on Wednesday.

OUTLOOK

On Friday, prices of government bonds are seen opening higher after a banking source exclusively told Informist that the Monetary Policy Committee may mull pausing rate hikes after Friday.

Traders may keep to the sidelines on caution ahead of the policy announcement by RBI Governor Shaktikanta Das at 1000 IST on Friday.

The rate-setting panel is expected to increase the repo rate by 35-50 bps, according to the majority of participants in an Informist poll.

The Monetary Policy Committee won't try to match the actions of some other central banks such as the US Federal Reserve, and may turn data-dependent, the source said.

Following the report, traders are now expecting a repo rate increase of 25-35 bps to match the pre-pandemic level of 5.15%, dealers said.

Even a higher-than-expected increase of 50 bps will be bought into if the RBI guides for a slower pace of policy tightening moving forward, dealers said.

Investors may make room for fresh issuance at the 330-bln-rupee weekly gilt auction on Friday, even as bets may not be very aggressive, dealers said.

The government has offered to sell 40 bln rupees of the 6.69%, 2024 bond, 70 bln rupees of the 7.10%, 2029 bond, 130 bln rupees of the 6.54%, 2032 bond, and 90 bln rupees of the 6.95%, 2061 bond.

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 7.20-7.28%.

India Gilts: Surge as bk source says RBI may pause rate hikes post Fri

NEW DELHI--1445 IST--Government bond prices surged after Informist exclusively reported, quoting a banking source, that the Reserve Bank of India's Monetary Policy Committee may mull pausing rate hikes after the policy outcome on Friday, dealers said.

The rate-setting panel won't try to match the actions of some other central banks such as the US Federal Reserve, and may turn data-dependent, the source said.

Informist also exclusively reported that the RBI may stand pat on its growth and inflation projections for 2022-23 (Apr-Mar), quoting a banking source.

"The relief rally is based on the RBI rate hike view now coming sharply downward," a dealer at a private bank said.

Gilt prices had surged over this week as traders bet on the RBI to moderate its rate view and signal inflation had peaked, dealers said. 

During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.10-7.20%.  (Aaryan Khanna)

India Gilts: Rise tracking fall in crude Wed; MPC meet outcome eyed

NEW DELHI--0948 IST--Prices of government bonds rose tracking an overnight fall in crude oil prices to near six-month lows, dealers said. Gains were limited as traders avoided placing aggressive bets ahead of the Monetary Policy Committee meeting outcome on Friday.

Crude oil futures slumped around 4% on Wednesday after US data showed crude and gasoline stockpiles unexpectedly surged last week and as the Organization of the Petroleum Exporting Countries and allies said it would raise its oil output target by 100,000 barrels per day.

The Brent crude contract for October delivery fell to $96.78 per barrel on Wednesday against $100.54 per bbl on Tuesday. Typically, a fall in crude oil prices decreases the risk of imported inflation in India, reducing pressure on the Reserve Bank of India to withdraw monetary policy accommodation.

The central bank's rate-setting panel is expected to hike rates by 35-50 bps, according to a majority of the participants in an Informist poll.

"The early rise was due to the fall in crude overnight," a dealer at a state-owned bank said. "But there is a big event on Friday so traders will be wary of large bets and may stay on the sidelines for the rest of the day."

Traders also booked profits as the yield on the 10-year 6.54%, 2032 bond neared the key 7.20% mark today, dealers said.

During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.18-7.27%. (Shubham Rana)

India Gilts: Seen up as crude falls; caution likely before MPC meet

NEW DELHI – Government bonds are seen opening higher today because of an overnight slump in crude oil prices. However, traders may avoid large bets ahead of the outcome of the Reserve Bank of India's Monetary Policy Committee meeting on Friday, dealers said.

The yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.18-7.27%, as against 7.24% on Wednesday.

Crude oil futures slumped around 4% on Wednesday to almost six-month low after US data showed crude and gasoline stockpiles unexpectedly surged last week and as the Organization of the Petroleum Exporting Countries and allies said it would raise its oil output target by 100,000 barrels per day.

US crude stocks rose by 4.5 mln barrels last week, compared with expectation of a draw of 600,000 barrels. Gasoline stocks also gained by 200,000 barrels, against expectation for a 1.6 mln barrel fall.

The Brent crude contract for October delivery fell to $96.78 per barrel on Wednesday against $100.54 per bbl on Tuesday.

The positive global cues are seen adding to the robust appetite for gilts in the domestic market as the rate view softens, dealers said.

In a poll by Informist, all 30 respondents expect the rate-setting panel to hike the repo rate, but the divide on quantum was clearly visible. While a dozen respondents expect repo rate to be hiked exactly by 50 bps, 11 see a hike by 35 bps, two by 25 bps, and one by 40 bps. The other four respondents gave a range for the hike--two of 35-50 bps, and one each of 25-35 bps and 40-50 bps.

Sharp gains may be capped as traders may book profit if the yield on the 10-year 6.54%, 2032 bond falls under the 7.20% mark today, dealers said. (Shubham Rana)

End

US$1 = 79.47 rupees

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

Edited by Maheswaran Parameswaran

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