Tag: Benchmark

Festival season brings cheer to bond market

Banking & Finance

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Although the week was short due to the festive season and yield movements were narrow, all the newsflow last week turns out to be positive for the domestic bond market. The benchmark yield closed at 6.36 per cent on Wednesday, down by almost 3 basis points compared to the week before.

Global events

On the global front, the US Fed announced tapering of its bond buying programme on much anticipated lines at $15 billion per month. The 10-year US treasury yields, which had been having a negative impact on the domestic bond market, cooled down to 1.45 per cent last week compared to 1.56 per cent the week before. Brent crude prices also softened a bit, even nudging the $80/barrel mark last week before closing near the $83/barrel level.

Domestic development

On the domestic front, the Centre announced an excise duty cut of ₹5 per litre on petrol and ₹10 per litre on diesel last week. Bond dealers say this will be a positive for the market which expects the yields to fall further down to near the 6.3 per cent mark. Meanwhile, the Reserve Bank of India continued to absorb the excess liquidity out of the system even as it conducted a 15-day variable rate reverse repo auction where the cut-off rate stood at 3.99 per cent. The central bank accepted offers worth ₹4.34 lakh crore against the notified amount of ₹5 lakh crore.

Subdued CPI expected

This week, the market is looking forward to the announcement of the consumer price index inflation print. Market participants say the CPI figure will most likely stand below the 4 per cent mark owing to the base effect for October, post which it may slightly start moving up gradually.

Vijay Sharma, Senior Executive Vice-President at PNB Gilts opined that so far, all the developments seen during the week are positive for the domestic bond market. “The two factors that were responsible for the upward movement in yields have turned positive over the last few days. The US Treasury yields came down even as the Fed decision on tapering stood pretty much in line with the market expectations. Crude prices coming down and a cut in excise duty are also conducive for the yields. It seems the benchmark yield could move towards the 6.3 per cent level in the short term. The inflation print for October is expected to come down below 4 per cent, mostly due to base effect.”

 

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Benchmark G-Secs can edge up from the current level

Banking & Finance

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The benchmark government securities yield fell 10 basis points last week to close at 6.155 per cent on Friday and the momentum is expected to continue this week, according to bond traders who are waiting keenly for the consumer price index (CPI) inflation to be released mid-September.

The rally in the G-Secs market came on the back of a combination of factors like the US Fed Chair Jerome Powell’s dovish stance at the Jackson Hole Summit, high domestic liquidity and absence of key triggers in the market.

Period of apprehension

Bond traders, however, had a period of apprehension post the monetary policy announcement earlier this month.

Indications from the RBI that it is beginning to normalise its monetary policy by balancing liquidity at the shorter end through VRRR, along with one of the MPC members expressing reservation about the accomodative stance, made the market nervous. A primary dealer said there were concerns that more members would convert to hawks.

Fed stance soothes nerves

Bond yields continued to rise gradually and reached a peak of 6.255 per cent ahead of the Jackson Hole summit. However, Powell’s dovish stance calmed the nerves with the benchmark yield moving 10 basis points lower last week to close at 6.155 per cent.

Moreover, traders indicate that there was significant foreign portfolio investors’ (FPI) participation in the G-Secs market last week, especially in long tenor papers.

Vijay Sharma, Senior Executive Vice-President, PNB Gilts said the worst of the inflation seems to be over.

“The situation on the fiscal side is also not bad. It looks like the GST collections are also doing really well. These factors should augur well for bonds in the coming times unless we encounter some unexpected events. We can say that the level of 6.25 is now well protected. The momentum being very strong, the market can rally up to 6.1-6.12 per cent also unless some event pierces the rally,” Sharma said.

Siddharth Shah, head of treasury at STCI Primary Dealer said, at 6.25 per cent levels, the market found comfort in going long.

“Furthermore, the Fed Chair’s speech gave some amount of comfort. With the SDL supply seeing reduction, expectations of additional borrowing diminishing on account of upbeat GST collections, replacement demand for bonds on account of G-SAP amidst high market liquidity, conditions became ripe for a rally in bond yields. The benchmark yield is now close to 6.15 per cent and has the potential to go further down to 6.10-6.12 per cent,” Shah said.

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RBI’s short-term paper devolves; 10-year G-Sec unsubscribed

Banking & Finance

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Government securities (G-Sec) prices dropped on Friday as the weekly G-Sec auction saw the short-term paper devolve on primary dealers (PDs) and the 10-year paper going unsubscribed.

Price of the benchmark 2030 G-Sec (coupon rate: 5.85 per cent) declined about 12 paise over the previous close, with its yield going up about 2 basis points. This paper was last traded at ₹98.725 (yield: 6.0285 per cent).

Bond yields and price are inversely related and move in opposite directions.

At the auction of the 2023 G-Sec (4.26 per cent), almost 97 per cent of the notified amount of ₹3,000 crore devolved on PDs. PDs are financial intermediaries which support the Government’s market borrowing programme and improve the secondary market liquidity in G-Secs.

Though the RBI received 99 bids aggregating ₹18,782 crore against the notified amount of ₹14,000 crore at the auction of the 10-year G-Sec, it neither accepted any bids nor did it devolve the paper on PDs.

The only paper that got fully subscribed was the 2061 G-Sec (6.76 per cent). In fact, green shoe amount of ₹48.454 crore was accepted over and above the notified amount of ₹9,000 crore.

Hardening yields

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said: “In last few days, yields have been hardening at short end. With inflation inching upwards, Brent crude up…there are fewer bidders for short papers. Probably due to this the paper got devolved.”

Irani observed that volumes in the existing 10- year benchmark are dropping on expectations of a new benchmark being issued. Probably, the bids were at uncomfortable levels, resulting in RBI not accepting any bids at the auction of this paper.

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Dollar firm amid US yield spike; bitcoin back below $60,000 following surge to record high, BFSI News, ET BFSI

Personal Finance

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TOKYO: The US dollar held firm on Monday after bouncing off a one-week low last week, supported by a spike in benchmark Treasury yields to more-than-one-year highs as inflation fears continued to smoulder.

Bitcoin retreated to below $60,000 amid a Reuters report that India will push ahead on a proposal to ban cryptocurrencies. It had surged to a record $61,781.83 over the weekend.

The greenback traded near its highest since June against the Japanese yen, which tends to weaken when Treasury yields rise.

Market participants have grown wary in recent weeks that massive fiscal stimulus and pent-up consumer demand could lead to a jump in inflation as expanding vaccination campaigns bring an end to lockdowns.

U.S. producer prices had their largest annual gain in nearly 2-1/2 years, data showed on Friday, while the country’s economy is set to get a massive shot in the arm from President Joe Biden’s $1.9 trillion stimulus package.

The outlook for the already brisk pace of U.S. vaccinations has also been boosted by Biden’s order for every state to make all adults eligible for vaccination by May 1.

The dollar index, which tracks the U.S. currency against six major peers, held around 91.645 early in Monday’s Asia session after climbing from near a one-week low of 91.364 at the end of last week.

Benchmark 10-year Treasury yields were at 1.6282% on Monday, close to Friday’s top of 1.6420%.

The dollar was largely flat at 109.04 yen on Monday, near the nine-month top of 109.235 reached last week.

The greenback has also been supported by a paring of bets for its decline, with speculators cutting net short positions to the lowest since mid-November in the week ended March 9, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data released on Friday.

The dollar index has gained 1.8% this year, tracking the rise in benchmark yields from below 1%. In 2020, the gauge fell nearly 7%.

Many analysts expect the dollar to resume that downtrend in due course.

“Higher bond yields alone are unlikely to sustain the upswing in USD,” Commonwealth Bank of Australia analysts wrote in a research note, adding dollar declines were coming “soon”.

“The move higher in bond yields largely reflects the better economic outlook, which is ultimately a weight on the USD.”

The euro was mostly unchanged at $1.19535, consolidating just below $1.20 after sliding to a three-month trough of $1.18355 last week.

The Australian dollar – viewed widely as a liquid proxy for risk appetite – rose slightly to $0.7769, paring some of Friday’s 0.4% loss.

The Canadian dollar was largely flat, after earlier strengthening to C$1.2461 for the first time in three years. On Friday, a bigger-than-expected domestic jobs gain supported the view that the Bank of Canada would reduce quantitative easing purchases next month.

Bitcoin changed hands at around $59,940 after Reuters cited a senior government official as saying India will propose a law banning cryptocurrencies and fining anyone trading in the country or even holding such digital assets.

It would be one of the world’s strictest policies against the red-hot digital assets, and comes just as bitcoin and its rivals have been gaining credibility amid a wave of endorsements from big investors such as BlackRock Inc and corporate leaders including Tesla Inc’s Elon Musk and Twitter Inc‘s Jack Dorsey.

Bitcoin has more than doubled in value this year, after more than quadrupling in 2020.



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