Indian state banks to await yields uptick before buying more government bonds
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India's state-run banks are likely to wait for government bond prices to drop before rebuilding positions, traders said.
Banks have been offloading notes over the past month to book profits following a price rally led by hopes of a policy pivot by the local and U.S. central banks.
"Public sector banks will look to enter in a major way only around 7.28%-7.30% levels, and until then we may see them booking profits and staying on the sidelines," said a senior treasury official at a state-run bank.
State-run banks have sold more than 450 billion rupees ($5.48 billion) of government bonds in the 24 trading sessions from March 9 to April 18, turning net buyers only in four of those sessions, data from Clearing Corp of India showed.
GRAPHIC - State-run banks' activity in government bonds
https://www.reuters.com/graphics/INDIA-MARKETS/egpbyldarvq/chart.png
Yields started declining in March, tracking a plunge in U.S. peers as turmoil in the global banking system led to increased bets of a policy pivot by the U.S. Federal Reserve.
Local bond yields fell further after debt supply for April-September came in largely in line with expectations, and a surprise pause on rates by the Reserve Bank of India earlier in the month offered more support.
Benchmark 7.26% 2032 bond yield eased as much as 30 basis points compared to closing levels of March 8, and was last trading at 7.21%, while 5-year 7.38% 2037 bond yield dropped 45 bps, and was last at 7.02%
"The preference for shorter-tenor papers will increase after the central bank's surprise pause," said Vijay Sharma, senior executive vice president at PNB Gilts.
Roughly half of the total sales are in April when state-run banks typically sell stock from their Held-to-maturity (HTM) portfolios.
"In April, there is more selling pressure as banks also sell from HTM, and they even have to focus on credit growth, and with liquidity set to tighten, we may not see major purchases," said Abhishek Upadhyay, senior economist at ICICI Securities Primary Dealership.
Even though state-run banks have sold over 450 billion rupees of bonds, bankers do not expect them to replenish a similar amount, as they have been sitting on an excess Statutory Liquidity Ratio and focus remains on credit growth this year.
SLR is the minimum percentage of deposits commercial banks are required to invest in liquid assets such as government bonds.
