Tag: yields

Yields harden as liquidity concerns outweigh positive news

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Benchmark yields rose 5 basis points last week compared to the previous one pushed up by concerns on the liquidity front despite a slew of positive news.

The week commenced with the FY22 second-half borrowing calendar coming in at ₹5.03-lakh crore, which was well within the anticipated level. Then came the fiscal deficit number for April-August at 31 per cent of the Budget Estimate. The GST collections for September also came in at ₹1.17-lakh crore which is 23 per cent higher compared to the same month last fiscal.

However, yields continued to move higher as concerns on the liquidity front took precedence. For one, the cut-off on the seven-day variable rate reverse repo auction came in at 3.99 per cent last week. Compared to this, the cut-off on the 14-day variable rate reverse repo auction was at 3.6 per cent the week before.

This implies that the RBI is gradually getting comfortable paying a relatively higher rate in order to suck out the excessive liquidity sloshing around in the system.

Rate review

Bond market participants are wary that the central bank will raise the variable rate reverse repo (VRRR) auction quantum as well as the tenors and also raise the fixed reverse repo rate in the upcoming Monetary Policy.

Ananth Narayan, Professor-Finance at SPJIMR, said a lot has happened over the past few weeks that wasn’t conducive for the bond market. “Commodity prices have shot up, there have been energy shortages around the world, mainly China and the UK, and the whole confusion about the US debt ceiling also added pressure on the US treasury yields.

“As we worry about cost-push and imported inflation, the concern is whether the RBI might start reducing G-SAP and raising overnight rates next week. I believe the central bank would not want to shock the markets. They may increase the VRRR and suck out some of the excess liquidity, but would also comfort the market that the liquidity would remain on the surplus side for much longer. I think it would be a surprise if the benchmark yield goes beyond 6.30 per cent in the short term,” Narayan said.

The 10-year US treasury yield also went up to 1.56 per cent last week before cooling to 1.46 per cent. With the benchmark yield hitting 6.24 per cent, bond traders expect the yield to find solace close to the 6.3 per cent level. All eyes are now on the Monetary Policy where the crucial thing to watch out would be any potential changes in the VRRR quantum, tenor as well as the fixed reverse repo rate.

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Gold steadies below $1,800 as firm dollar, yields weigh, BFSI News, ET BFSI

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Gold prices steadied on Wednesday, after slipping 1.6% in the previous session when it breached the key psychological level of $1,800, as gains in the dollar and a rise in US Treasury yields hurt bullion’s appeal.

FUNDAMENTALS
Spot gold rose 0.1% to $1,796.03 per ounce by 0116 GMT, hovering slightly above the more than one-week low of $1,791.90 hit on Tuesday.

US gold futures were steady at $1,799.40.

The dollar hovered near a one-week peak against major peers.

The benchmark 10-year Treasury note rose as high as 1.385% on Tuesday for the first time since mid-July, increasing the opportunity cost of holding non-interest bearing bullion.

US President Joe Biden will present on Thursday a six-pronged strategy intended to fight the spread of the Delta coronavirus variant and increase vaccinations.

Japan’s economy grew faster than the initially estimated in the April-June quarter, helped by solid capital expenditure, although a resurgence in COVID-19 is undermining service-sector consumption and clouding the outlook.

Russia’s Nornickel, world’s largest producer of palladium and high-grade nickel, has extracted additional metals from waste products as part of new technology it tested to support its 2021 output from its Arctic mines that were hit by flooding, it said on Tuesday.

Venezuela’s gold reserves fell by three tonnes in the first half of 2021 to their lowest level in 50 years, central bank data showed on Tuesday, as President Nicolas Maduro’s cash-strapped government continues selling gold as a source of income.

Silver rose 0.1% to $24.32 per ounce, platinum edged 0.3% higher to $1,001.36 and palladium was up 0.2% to $2,376.37.



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

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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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RBI’s heavy lifting helping govt borrow at lower cost

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The Reserve Bank of India (RBI) had clearly saved the day for the government in helping it borrow money at lower cost during the January-March 2021 quarter, despite spike in its borrowings, the latest quarterly public debt management report showed.

The government announced additional borrowing of ₹80,000 crore for FY21 in the Budget on February 1 this year, which led to a situation where the market found it difficult to absorb the supply. The yields also reacted negatively due to high fiscal deficit proposed in FY22 and higher-than-projected fiscal deficits for coming year.

Besides, rising crude prices and the gross borrowing amount of ₹12.06 lakh crore — more than market expectations — contributed to the hardening of the yields.

However, it is the RBI’s Monetary Policy Committee which gave comfort to the market by keeping Repo rate unchanged at 4 per cent at its meeting on February 5 and also announced the continuing with accommodative stance as long as necessary — atleast during the current financial year (2020-21) and into the next financial year (2021-22), the report highlighted.

OMO, G-Sec and Yield

The continuous announcement of Open Market Operations (OMO) by RBI, the US Federal Open Market Committee’s to keep interest rates near zero through 2023, lower demand by the real sector, cancellation of G-sec auction in the last week of March supported the yield, the quarterly public debt management report released by the Finance Ministry on Friday highlighted.

Commenting on the finance ministry’s report, Madan Sabnavis, Chief Economist, CARE Ratings, told BusinessLine: “Public debt management report of the government released today shows that the RBI played a critical role in managing the yield curve in FY 21 and hence facilitated a large government borrowing programme. While the room to lower repo rate below 4 per cent was limited large purchase of around ₹3 lakh crore of OMOs as well as operation twist (where different maturities are bought and sold) combined with TLTROs helped to stabilise the yields at a time when there was too much paper in the market”.

He highlighted that the same scene continues this year too with the RBI overtly stating that one of the objectives of the monetary policy is to manage the yield curve.

Liquidity woes

Meanwhile, a report from CARE Ratings on Friday highlighted that ₹26,000-crore government paper auctioned by the RBI on Friday saw a mixed response. Once again, the response to the 5.85 per cent 2030 paper was negative and it went unsubscribed. There have been two earlier occasions when the ten-year paper devolved on the primary dealers.

The market is still demanding more from the government given the large borrowing programme as well as the rising inflation trend, according to CARE Ratings. Since the beginning of the pandemic last year, the RBI has had to face the challenge of providing enough liquidity to finance the increased government borrowing without allowing interest rates and bond yields to rise. The central bank continues to face the same challenge in the current fiscal too, say economists.

The other major concern is that despite adequate liquidity infusion and reduction in interest rates, the growth of credit has remained at a low pace.

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10-year G-Sec auction sees devolvement

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Government securities (G-Secs) prices rose on Friday despite the Reserve Bank of India (RBI) devolving the 10-year benchmark G-Sec on primary dealers (PDs) at the weekly auction.

Market participants attributed this to the aforementioned security being among the six G-Secs RBI will be buying under the third tranche of open market purchase of G-Secs under the G-Sec Acquisition Programme (G-SAP 1.0).

Though the cut-off price at the auction of the 10-year G-Sec came in at ₹98.97 — about 19 paise higher than previous closing price (of ₹98.7850) — bond dealers say many of the bids would have been below Thursday’s closing price, leading to devolvement of the paper PDs.

PDs, who underwrite G-Sec auctions, had to pick up ₹9975.763 crore worth of this paper out of the total notified amount of ₹14,000 crore.

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said the central bank has kept the yield on the 10-year on a tight leash in view of the large Government borrowing programme amid the Covid-19 pandemic, while the market players want it to leave the yields to market forces.

Keeping yields in check

Irani observed that G-Sec prices did not fall despite devolvement of the 10-year G-Sec on PDs as market participants know that RBI will buy this security through G-SAP.

In the secondary market, the benchmark 10-year G-Sec coupon rate: 5.85 per cent) rose 9 paise to close at ₹98.875 (previous close ₹98.785), with the yield declining about a basis point to 6.0072 per cent (6.0199 per cent).

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

The auction of the other two G-Secs — 4.26 per cent GS 2023 and 6.76 per cent GS 2061 — sailed through.

Under G-SAP, RBI commits upfront to a specific amount of open market purchases of G-Secs with a view to enabling a stable and orderly evolution of the yield curve amidst comfortable liquidity conditions. According to State Bank of India’s economic research report “Ecowrap”, the G-SAP programme of the RBI has been largely successful in keeping the bond yields in check.

However, to make the impact more meaningful, RBI may consider shifting the focus on 7-8 year papers while announcing Open Market Operation/ G-SAP, etc., it added.

“This will smoothen the curve and also reduce upward pressure on benchmark yield. Additionally, RBI can also come up with a prior calendar of bucket-wise maturity for GSAP-2.0,” Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI, said.

Furthermore, more purchases might be done in illiquid securities compared to liquid securities in each bucket. Accordingly, banks will be able to offload their HTM (held-to-maturity) stocks and buy liquid ones.

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Top rupee-bond banker says time for Indian firms to issue, BFSI News, ET BFSI

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Indian companies should use the current yields which are at multi-year lows to raise long-term funding, according to the nation’s biggest rupee bond arranger since 2007.

“The market levels are absolutely fantastic, absolute yields are quite low at multi-year lows, spreads are quite tight,” Neeraj Gambhir, group executive and head – treasury, markets and wholesale banking products at Axis Bank Ltd., said in an interview with Bloomberg Television. “Our suggestion to borrowers is that current market scenario is very good and if they need long-term funding they should be accessing the markets.”

Companies borrowed an unprecedented 9.8 trillion rupees ($134.4 billion) through domestic bonds in the fiscal year ended March as they build up cash buffers to tide over the pandemic. The average yield on top-rated two-year rupee corporate notes fell 15 basis points on Tuesday to 4.63 per cent, the biggest decline since May 17. Notes touched a record low of 3.84 per cent in April.

India’s central bank will probably need to buy 3-4 trillion rupees of sovereign bonds this fiscal year to support the government’s borrowing program, Gambhir said. He expects the benchmark 10-year yield to remain near the 6 per cent mark in the ‘foreseeable future.’

The rupee is likely to remain around current levels and unlikely to depreciate immediately, Gambhir said.

“The strength of the rupee is reflective of the dollar weakness particularly against EM currencies and I don’t expect it to reverse in a meaningful way anytime in the near term,” he said.

The rupee was trading down 0.2 per cent to 73 a dollar on Wednesday.



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Riskier currencies recover from Friday carnage; dollar consolidates

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The Australian dollar and other riskier currencies recovered some lost ground against the US dollar on Monday, after suffering their biggest plunges in a year at the end of last week amid a hefty sell-off in global bond markets. The greenback weakened broadly early in Asia trade, but barely enough to trim its biggest surge since June from Friday.

Currency markets have taken cues from the global bond market, where yields have surged in anticipation of an accelerated economic recovery. The aggressive bond selling implies a bet that global central bankers will need to tighten policy much earlier than they have so far been forecasting. Equities and commodities have also sold off as the debt rout unsettles investors.

Also read: Asian stocks surge, battered bond market tries to steady

“USD direction is likely to hinge on not only the direction, but also the pace, of global bond moves,” Commonwealth Bank of Australia strategists wrote in a research note. Bond moves are trumping economic data as the driver of foreign-exchange markets, with yields moving “well in advance” of economic fundamentals, they said. “The risk is tilted to a firmer USD this week because we doubt central banks will intervene in any meaningful way yet.”

The Aussie dollar jumped 0.6 per cent to $0.7754 early in the Asian session on Monday, following a 2.1 per cent plunge on Friday. The New Zealand dollar strengthened 0.6 per cent to $0.7270, recovering some of Friday’s 1.9 per cent slide. The euro gained 0.2 per cent to $1.20910, after dropping 0.9 per cent at the end of last week, the most since April. The dollar slipped 0.1 per cent to 106.415 yen, but still near the six-month high of 106.69 touched on Friday.

Federal Reserve Chair Jerome Powell, who last week repeated the US central bank will look through any near-term inflation spike and tighten policy only when the economy is clearly improving, will speak on the economy this Friday, the same day as the usually closely-watched monthly payrolls data is due. The Reserve Bank of Australia will hold its monthly policy meeting on Tuesday, and markets are widely expecting it to reinforce its forward guidance for three more years of near-zero rates, while also addressing the market dislocation.

Currency bid prices at 050 GMT

Description RIC Last US Close Pct Change YTD Pct High

Bid Low Bid Previous Change Session Euro/Dollar

$1.2095 $1.2070 +0.22% -1.00% +1.2102 +1.2070

Dollar/Yen 106.4420 106.5700 -0.15% +3.02% +106.5670 +106.4000

Euro/Yen 128.74 128.60 +0.11% +1.43% +128.8000 +128.6000

Dollar/Swiss 0.9075 0.9086 -0.13% +2.57% +0.9086 +0.9060

Sterling/Dollar 1.3983 1.3923 +0.45% +2.37% +1.3990 +1.3931

Dollar/Canadian 1.2693 1.2740 -0.35% -0.31% +1.2732 +1.2690

Aussie/Dollar 0.7747 0.7799 -0.64% +0.73% +0.7757 +0.7706

NZ 0.7271 0.7231 +0.57% +1.27% +0.7280 +0.7234

Dollar/Dollar All spots Tokyo spots Europe spots Volatilities Tokyo Forex market info from BOJ

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RBI to conduct OMO of ₹20,000 crore on Feb 10

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The Reserve Bank of India (RBI) on Monday said it will purchase four government securities (G-Secs) aggregating ₹20,000 crore under open market operations (OMOs) on February 10, 2021.

This comes in the backdrop of yields moving up to touch an intra-day high of 6.1634 per cent (on Tuesday) last week on concerns about higher government borrowing.

Also read: Yield on 10-year G-Sec softens 4.85 bps

Following the announcement of the OMO purchase, yield on the benchmark 10 year G-Sec, carrying a coupon rate of 5.77 per cent, softened about 3-4 basis points in today’s trading so far against the previous closing yield of 6.1283 per cent.

Last Friday, when the monetary policy review was conducted, the G-Sec market didn’t seem impressed with the liquidity and regulatory measures that were announced.

Yield on the 10-year benchmark G-Sec edged up about 3 basis points on February 5, 2021, to close at 6.1283 per cent and its price declined about 23 paise to ₹97.45.

The OMO announcement for purchase of G-Secs — 6.18 per cent G-Sec 2024; 7.17 per cent G-Sec 2028; 5.77 per cent G-Sec 2030; and 6.19 per cent G-Sec 2034 — is expected to keep the yields in check.

The government will be borrowing ₹80,000 crore more in the February-March 2021 period. The gross borrowing programme next year is of the order of ₹12-lakh crore.

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