Yields on most liquid gilts fall on little buying as crude prices trend lower

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“Lower oil prices have supported bonds yields, but further gains have been capped as most traders remained cautious ahead of the monetary policy and its guidance on inflation and liquidity,” a fund manager with a large fund house said.“Lower oil prices have supported bonds yields, but further gains have been capped as most traders remained cautious ahead of the monetary policy and its guidance on inflation and liquidity,” a fund manager with a large fund house said.

Yields on the most liquid government securities fell on Wednesday as there was little buying towards the closing of the market owing to lower crude oil prices in the international market, dealers said. However, other bonds, including the new 10-year benchmark, ended almost flat.

“Lower oil prices have supported bonds yields, but further gains have been capped as most traders remained cautious ahead of the monetary policy and its guidance on inflation and liquidity,” a fund manager with a large fund house said.

The most traded bond, 5.63%-2026 bond, ended at 5.7102%, lower than 5.7336% closed on Tuesday, and 6.64%-2035 bond closed at 6.8048% compared with 6.8142% on the previous trading session. Most traders are wary of placing large bets ahead of the monetary policy due on August 6, as the market is largely expecting that the central bank will hike its inflation forecast and give some guidance on liquidity. The monetary policy committee is expected to keep rates unchanged and continue with its accommodative stance, but traders will closely watch the communication of the central bank on inflation and liquidity management, dealers said.

The market had been trading in a very thin range since morning as it opened flat and remained flat, but some buying was seen towards the end as some traders took positions in most liquid bonds, a dealer with state-owned Primary Dealer (PD) said.

Brent crude prices were trading lower in the international market on concerns of rising Covid-19 infections due to the Delta variant in the top oil-consuming countries globally such as the US and China. This is the third day when crude oil prices are trading lower in a row on demand growth worries.

The US is registering an average of almost 75,000 new Covid cases, which are sharply higher from about 13,000 cases daily a month ago, according to media reports. Despite the rising cases, the US has reported that 70% adults have received at least the first dose of Covid-19 vaccine, but un-vaccinated people are getting infected more. During the close of market hours, Brent crude oil prices were trading at $71.53 a barrel, down 88 cents or 1.22% for the contract maturing in October 2021.

Additionally, the US Treasury yields ended almost flat on Tuesday, after falling to 1.15% on Monday on slower than expected US manufacturing sector and rising Covid cases, which dampened the sentiments of investors. The 10-year US Treasury yields ended at 1.174% on Tuesday.

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