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India Gilts Review: Up as Apr-Jun GST mop up eases some worry on fisc

Wednesday, Jul 1, 2020

 

By Suyash Pande and Vaibhav Chakrobarty

 

NEW DELHI – Government bonds surged today as data showed goods and service tax collection in Apr-Jun was better than expected, which eased some concerns about the state of the Centre's finances, dealers said.

 

Market participants rushed to cover their short bets as stop-losses were triggered once yield on the 10-year benchmark 5.79%, 2030 bond fell below the psychologically-crucial level of 5.85%, dealers said.

 

The 10-year benchmark 5.79%, 2030 bond ended at 99.63 rupees or 5.84% yield, against 99.26 rupees or 5.89% yield on Tuesday.

 

Data released today showed goods and service tax collection for June was at 909.17 bln rupees, and for Apr-Jun it was 1.852 trln rupees, down 41% on year.

 

In the month of April, GST collection was at 322.94 bln rupees, and in May it was at 620.09 bln rupees.

 

India was under a near-complete lockdown in April, and economic activity was almost at a standstill. 

 

In May, while many regions reopened to a certain extent, areas which are major contributors to India's growth were still shut. Economic activity resumed partially in June across the nation.

 

Earlier today, manufacturing purchasing managers' index for June was reported at 47.2. While this was still in the contraction territory, it was sharply higher than 30.8 in May and 20.7 in April. An index reading below 50.0 indicates contraction in economic activity.

 

Dealers said these data points indicated a recovery in economic activity and the hit to government's finances may not be as bad as was earlier feared.

 

This also prompted traders to bet on the view that the Centre may not need to borrow from the market as aggressively as it had in the previous quarter.

 

"The GST collection data is much better than what the market had expected and I personally am now bullish," a dealer with a private bank said.

 

"This data means people would be consuming more through the formal economy than the informal and it will add to GST collections going forward so the fiscal picture may be less bleak," the dealer said.

 

Government bonds began the day on a positive note as some traders said the lower-than-expected quantum of borrowing, as per the indicative plan by state governments released on Tuesday, also improved appetite.

 

State governments are expected to borrow around 1.78 trln rupees in Jul-Sep–which lies at the lower end of expectations of 1.7-2.0 trln rupees.

 

Traders also said the large surplus liquidity has prompted them to heavily purchase short-term papers, which is also dragging down yields of long-term bonds.

 

Mutual funds are said to have been buying papers in the 1-5 year maturity period. They have bought dated securities of 32.59 bln rupees in the last three trading days.

 

"Today we have seen a technical breakout. Some people were positioned anticipating a fall in prices for the last few days but that has not been coming and a buying momentum has built so all bears had to cover positions after yield fell below 5.85%," a dealer with a primary dealership said.

 

"There is no negative news as such–SDL(state development loans amount) was lower than expected, RBI has been buying dollars and supplying rupee and liquidity is huge so this buying may sustain," the dealer said.

 

Foreign exchange reserves have risen to $505.57 bln as on Jun 19, from $493.48 bln at the end of May, according to data on RBI's website. Dealers said the central bank has continued to purchase dollars and added to rupee liquidity even after Jun 19.

 

Gilt trading hours were extended to 1500 IST for today due to an alleged delay in allocation of Treasury bills, according to market participants.

 

OVERNIGHT INDEXED SWAPS

Overnight indexed swap rates ended steady today as market participants refrained from placing large bets due to lack of fresh cues on domestic interest rates, dealers said.

 

The one-year OIS rate ended at 3.62-3.63% against 3.63-3.65% on Tuesday. The five-year swap rate ended at 4.14-4.16%, compared with 4.15-4.16% at the previous close. 

 

With no fresh cues, and rates having consolidated at current levels, traders believe rates are unlikely to fall as there is no reason for them to edge lower, dealers said.

 

In recent weeks, swap rates have tracked global crude oil prices or US Treasury yields for cues. Domestically, sharp movement in government securities has often lent cues to swap rates, dealers said.

 

"There is no reason to build fresh position in the OIS (overnight indexed swaps) right now with rate cuts already factored in, whatever movement we have seen in recent weeks were largely tracking US yields, crude prices, or movement in g-sec (government securities)," a dealer with a private bank said.

 

OUTLOOK

Government bonds are seen opening higher on Thursday ahead of the special open market operation auction.

 

The RBI has said it would buy up to 100 bln rupees of the 6.79%, 2027 bond, the 7.26%, 2029 bond, the 6.68%, 2031 bond, and the 6.57%, 2033 bond.

 

Simultaneously, it will sell 100 bln rupees of 182-day T-bills maturing on Oct 15 and Oct 22 and 364-day T-bills maturing on Apr 22 and Apr 29.

 

Any sharp movement in crude oil prices and US Treasury yields may also lend cues at open.  

 

Yield on the 5.79%, 2030 bond is seen in a band of 5.80-5.85% as against 5.84% today.

 

 

TODAY

TUESDAY

Price

Yield

Price

Yield

6.18%, 2024

 104.8025

 4.9348%

 104.6700

 4.9688%

5.22%, 2025

 100.7500

 5.0463%

 100.6300

 5.0740%

6.45%, 2029

 103.4400

 5.9597%

 103.2000

 5.9932%

5.79%, 2030

 99.6300

 5.8388%

 99.2625

 5.8885%

6.19%, 2034

 99.6500

 6.2280%

 99.3125

 6.2643%


India Gilts: Rise more as June GST mop up more than mkt expectation

 

 

1240 IST

  PRICE HIGH

  PRICE LOW

       OPEN

    PREVIOUS

5.79%, 2030

PRICE (rupees)

99.45

99.47

99.30

99.30

99.26

YTM (%)      

5.8638

5.8611

5.8834

5.8834

5.8885

 

NEW DELHI–1240 IST–Government bond prices extended gains as the government's total goods and services tax mop up for June was higher than market expectation, dealers said.

 

India's total GST collections in June rose to 909.17 bln rupees from 620.09 bln rupees in May, according to data released by the Centre.

 

"The market felt the numbers were surprisingly good, and it provides some relief for the government, considering that revenue was seen to take a massive hit because of the lockdown," a dealer with a private sector bank said.

 

Moreover, if collections continue to grow at this pace then the government may not have to borrow as much as it did in May, the dealer said.

 

Participants were of the view that the sharp uptick in the GST mop up is a surprise considering that the market expected it to be lower due to the nationwide lockdown, which had led to a fall in economic activity, dealers said.  (Vaibhav Chakraborty)


India Gilts: Rise as RBI's OMO announcement strengthens appetite

 

 

1100 IST

  PRICE HIGH

  PRICE LOW

       OPEN

    PREVIOUS

5.79%, 2030

PRICE (rupees)

99.42

99.45

99.30

99.30

99.26

YTM (%)      

5.8675

5.8631

5.8834

5.8834

5.8885

 

NEW DELHI– 1100 IST–Government bonds rose today following the RBI's announcement to conduct special open market operations on Thursday, dealers said.

 

After trading hours on Monday, the RBI said it will buy up to 100 bln rupees of four gilts and simultaneously sell up to 100 bln rupees of treasury bills of 182-day and 364-day maturity through open market operations.

 

The central bank said it will buy up to 100 bln rupees of 6.79%, 2027 bond; 7.26%, 2029; 6.68%, 2031 bond and 6.57%, 2033 bond.

 

Simultaneously, RBI will sell 100 bln rupees of 182-day T-bills maturing on Oct 15 and Oct 22 and 364-day T-bills maturing on Apr 22, 2021 and Apr 29, 2021.

 

Market participants are of the view that these operations are aimed at cooling off the elevated term premia. The spread between 5.79%, 2030 and the repo rate is at 187 bps, with the current yield on the benchmark paper at 5.87%. The repo rate stands at 4.0%.

 

However, the gains were capped as market participants wait for more clarity about the open market operations, as they were of the view that the recent announcement for simultaneous buying and selling of securities may be a one-off instance

 

"In recent times we have seen MFs have been buying which generally takes place in 1-5 year segment; the yields in those papers have fallen considerably, which is why looking at the spread the 5 and 10 year paper, people want to buy longer end in order to compress that spread," a dealer with private bank said.

 

Yields on short-term bonds have fallen due to recent purchases by the mutual fund houses. The mutual fund houses have bought securities worth 32.59 bln rupees in the last three trading days. 

 

The yield on the 5.22%, 2025 bond has fallen by 13 basis points in the last three trading sessions. 

 

"The SDL (state development loan) amount notified yesterday (Tuesday) has supported the appetite for dated securities as market was expecting a higher number than the one notified," said a dealer with a primary dealership.

 

Lower-than-expected state governments borrowing for Jul-Sep that was notified by the RBI on Tuesday has also supported the prices, dealers said.  

 

The central bank on Monday said state governments are expected to borrow 1.78 trln rupees in Jul-Sep through the auction of state development loans.

 

Yield on the 10-year benchmark 5.79%, 2030 bond is seen within a band of 5.85-5.90%, for the rest of the day, dealers said.  (Vaibhav Chakraborty)


India Gilts: Seen steady; mkt waits for clarity on more RBI OMOs

 

NEW DELHI – Government bond prices are likely to open steady today as market participants wait for more clarity about the open market operations, as participants are of the view that the recent announcement for simultaneous buying and selling of securities may be a one-off instance.

 

After trading hours on Monday, the RBI said it will buy up to 100 bln rupees of four gilts and simultaneously sell up to 100 bln rupees of treasury bills of 182-day and 364-day maturity through open market operations.

 

The central bank said it will buy up to 100 bln rupees of 6.79%, 2027 bond; 7.26%, 2029; 6.68%, 2031 bond and 6.57%, 2033 bond.

 

Simultaneously, RBI will sell 100 bln rupees of 182-day T-bills maturing on Oct 15 and Oct 22 and 364-day T-bills maturing on Apr 22, 2021 and Apr 29, 2021.

 

Market participants are of the view that these operations are aimed at cooling off the elevated term premia. The spread between 5.79%, 2030 and the repo rate is at 189 bps. The repo rate is 4.0%.

  

Participants are of the view that the yield on the 10-year benchmark 5.79%, 2030 is likely to be confined to the narrow range of 5.85-5.92% until there is more clarity from the RBI regarding the open market purchases of dated securities as it is difficult for the market to absorb such a large supply of bonds.

 

The market has been facing the uphill task of absorbing 12 trln rupees worth of gross market borrowings after the Centre announced a hike of 4.2 trln rupees in May for 2020-21 (Apr-Mar) from 7.8 trln rupees budgeted. 

 

Market participants expect the short-end bonds to be supported during the day due to recent purchases of securities by mutual fund houses. The mutual fund houses have bought securities worth 32.59 bln rupees in the last three trading days.

 

Yield on the 10-year benchmark 5.79%, 2030 bond is seen within a band of 5.87-5.92% as against 5.89% on Tuesday.  (Vaibhav Chakraborty)

End

 

US$1 = 75.57 rupees 

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

 

Edited by Aditya Sakorkar

 

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