Informist, Wednesday, Aug 3, 2022

By Aaryan Khanna

NEW DELHI – Prices of government bonds fell sharply as US Federal Reserve officials signalled they may continue to raise interest rates aggressively, pushing up US Treasury yields on Tuesday, dealers said.

Today, the 10-year benchmark 6.54%, 2032 bond settled at 95.25 rupees, or 7.24% yield, as against 95.55 rupees, or 7.20% yield, on Tuesday.

Chicago Fed President Charles Evans suggested the Federal Open Market Committee may hike rates by 50-75 basis points if inflation does not abate by its next policy meeting in September.

Mary Daly, his counterpart at the San Francisco Fed, also said the US central bank was "nowhere near" finished in its fight against inflation. CPI inflation in the US hit 9.1% in June, the highest level since November 1981.

The yield on the 10-year benchmark US Treasury note ended 15-bps higher at 2.75% on Tuesday, and traded at the same level at the end of Indian market hours today.

The narrowing interest rate differential between the haven asset and emerging market debt kept domestic bonds out of favour with foreign investors, who paid fixed rates in the five-year overnight indexed swap rate, dealers said.

"The volatility from global spillovers still remains a threat," a dealer at a private bank said. "I still expect the commentary from the RBI (Reserve Bank of India) to be neutral-hawkish in this policy, otherwise why would they be hiking rates?"

Losses were limited as short bets abated once the yield on the 10-year benchmark 6.54%, 2032 bond approached the psychologically-crucial level of 7.25% due to caution ahead of the outcome of the Monetary Policy Committee meeting on Friday, dealers said.

The rate-setting panel is expected to hike the repo rate by 35-50 basis points, according to a majority of the participants in an Informist poll.

After the meeting, the RBI is expected to outline a less aggressive path of policy tightening and might signal that inflation has peaked. This aided the demand for gilts, dealers said.

The central bank is also expected to cut its projection for retail inflation for 2022-23 (Apr-Mar) at the meeting. In June, it had estimated it at 6.7%.

The moderating domestic rate view persisted despite the comments from Fed officials and the possibility that global volatility may be flagged as a cause for concern by members of the Monetary Policy Committee, dealers said.

Earlier in the day, traders placed fresh short bets noting the jump in prices after unwinding their bets over the last two days.

Moreover, short sellers made room for the 330-bln-rupee weekly gilt auction on Friday, scheduled after the monetary policy statement, 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 this week.

"There was room to short (sell) aggressively in the morning because the volume (of short bets) in the 6.54%, 2032 bond has fallen to less than 50 bln rupees, which is much lower than the supply on Friday," a dealer at a state-owned bank said.

According to data on the central bank's Negotiated Dealing System – Order Matching platform, the market-wide turnover was 249.40 bln rupees compared with 457.15 bln rupees on Tuesday.

OUTLOOK

On Thursday, prices of government bonds are seen opening steady due to caution ahead of the outcome of the Reserve Bank of India's Monetary Policy Committee meeting on Friday.

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

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: Remain down on US yld jump; caution before MPC outcome

NEW DELHI--1430 IST--Government bond prices remained sharply lower, as US Treasury yields jumped on Tuesday following comments by Federal Reserve officials that indicated rate hikes were far from over, dealers said.

Chicago Fed President Charles Evans suggested the Fed may hike rates by 50-75 basis points if inflation does not abate by its next policy meeting in September. The yield on the 10-year US Treasury note jumped 15 basis points on Tuesday to 2.75%, and traded around those levels today.

The narrowing interest rate differential between the haven asset and emerging market debt kept domestic bonds out of favour with foreign investors, who paid fixed rates in the five-year overnight indexed swap rate, dealers said.

Losses were limited as traders avoided aggressive bets ahead of the Reserve Bank of India's policy outcome on Friday. The Monetary Policy Committee is expected to hike the repo rate by 35-50 points, according to a majority of the participants in an Informist poll.

While investors avoided stepping up purchases due to the adverse global cues, fresh short bets receded off as the 10-year benchmark yield approached the key 7.25% mark, dealers said.

"The impact has been mitigated because we are awaiting the policy that will set the path ahead for the next two months," a dealer at a state-owned bank said.

"Until then – except for a sharp change like today – prices should remain at current levels despite global movements."

During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.20-7.27%. (Shubham Rana)

India Gilts: Slump as US Fed officials say rate hikes to continue
 

NEW DELHI--0945 IST--The prices of government bonds slumped because of a surge in US Treasury yields on Tuesday after several US Federal Reserve officials said they were committed to tackle soaring prices, and will continue to raise interest rates to bring down inflation.

On Tuesday, San Francisco Federal Reserve Bank President Mary Daly said the central bank is “no where near” being done in its fight against inflation.

Chicago Fed President Charles Evans said the Federal Reserve could proceed with a 50 or a 75-basis-point rate hike at the central bank’s September meeting if inflation does not abate before then.

The yield on the 10-year benchmark US Treasury note ended 15 bps higher at 2.75% on Tuesday. The yield on the 10-year US note was at 2.71% in Asian trade.

The comments by Fed officials led to a reversal in US Treasury yields, which plunged after comments by Fed Chair Jerome Powell last week hinted at slow interest rate hikes going ahead.

Powell said it would likely be appropriate to slow the pace of hikes as rates get more restrictive and that the Fed wants to get to moderately restrictive levels by the end of the year. 

"We were expecting a 6-7 basis points rise (in yields) today but our market can't directly imitate a 15 bps rise in US yields," a dealer at a private sector bank said. "It will be interesting to see how the market behaves during the day, especially two days before the policy outcome."

The Monetary Policy Committee is expected to raise the repo rate by 35-50 bps at the policy outcome on Friday. After the meeting, the RBI is expected to outline a less aggressive path of policy tightening and signal that inflation had peaked, 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. 

During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.20-7.27%. (Shubham Rana)

India Gilts: Seen down as US yields rise on comments by Fed officials

NEW DELHI – The prices of government bonds may open lower today because of an overnight surge in Treasury yields after US Federal Reserve officials signalled they will continue to raise interest rates to curb high inflation.

The yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.18-7.25%, as against 7.20% on Tuesday.

The rise in US Treasury yields and Brent crude prices rising over the psychologically-crucial $100 per barrel mark may dampen the firm appetite for gilts in the domestic market ahead of the Monetary Policy Committee meeting outcome on Friday, dealers said.

San Francisco Fed President Mary Daly said the Fed was “nowhere near” done before stopping its war on inflation, and Chicago Fed President Charles Evans said the Federal Reserve could proceed with a 50 or even a 75-basis-point rate hike at the central bank’s September meeting if inflation does not abate before then.

Yields also rose as demand for haven assets fell after US House Speaker Nancy Pelosi arrival in Taiwan, safely, despite threats of action from China.

The yield on the 10-year benchmark US Treasury note ended 15 bps higher at 2.75% on Tuesday.

Crude oil futures edged higher on Tuesday ahead of the Organization of the Petroleum Exporting Countries and allies meet today where the cartel is not expected to raise crude supply amid concern that a possible global recession could limit energy demand.

The Brent crude contract for October delivery ended at $100.54 per barrel on Tuesday against $100.03 a bbl on Monday.

The Monetary Policy Committee is seen hiking the policy repo rate by 35-50 basis points at the policy outcome on Friday. After the meeting, the RBI is expected to outline a less aggressive path of policy tightening and signal that inflation had peaked, 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.  (Shubham Rana)

End

US$1 = 79.16 rupees

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

Edited by Namrata Rao

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2022. All rights reserved.