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Published on 13/11/2018 2:34:00 PM | Source: GEPLCapital Ltd

Debt Market Watch 20 November 2018 - GEPL

Posted in Top Stories| #GEPLCapital Ltd #Mutual Fund

Government Security Market: Update

The rally in the government bond market is capped at all the high levels as the Public-sector banks have cut holdings by a net 312 billion rupees ($4.4 billion) this quarter, even as sovereign bonds are poised for their first quarterly advance in more than a year. They could be forgiven for selling out. The year long slide in rupee bonds has left lenders with billions of rupees in losses, prompting them to sell on rallies. State Bank of India, the biggest, saw profits from treasury operations plunge 99 per cent to 368 million rupees in the September quarter from a year earlier. The selling has been particularly severe in the benchmark 10-year bond, which makes up most of the daily volume, causing them to underperform shorter tenor debt. The central bank’s open-market purchases of debt have also been concentrated in the shorter segment, generating more replacement demand in the maturities. During the week the market got surprised from the retail inflation numbers, which recorded at 3.31 percent a lower than the previous month. During the week the Reserve Bank of India sold 91; 182 & 364 DTB at a yield of 6.8951; 7.1662 & 7.3277 percent respectively. Ten states sold 4 to 25 years state loans in a range of 7.2928 to 8.61 percent. In a OMO purchase the RBI bought 8.79% 2021; 6.84% 2022; 8.40% 2024 & 8.24% 2027 at a yield of 7.3968; 7.4362; 7.5672 & 7.7379 percent respectively. In a weekly auction the RBI sold 6.65% 2020; 7.37% 2023; 7.95% 2032; 7.40% 2035 & 7.72% 2055 at a yield of 7.4284; 7.6496; 8.0058; 8.0502 & 8.0196 percent respectively.

The yield on the 7.17% government bond due May 2028 rose to 7.8158% from last week level of 7.7696% .

 

Global Debt Market: Update

U.S. Treasury 10 year benchmark yield fall to 3.06 percent after a top Federal Reserve official said the central bank was getting closer to reaching its neutral overnight rate. Investors also bought Treasuries amid political turmoil over Brexit and uncertainty surrounding the outcome of U.S.-China trade talks. Fears that the United Kingdom could soon leave the European Union without a solidified separation deal mounted again, sending the British pound reeling to its biggest one-day loss against the euro since October 2016 on Thursday. Prime Minister Theresa May has endured a string of resignations from her cabinet in recent days as her advisors split over her efforts to broker a deal with the EU. The dollar eased slightly versus other major currencies on Monday after Federal Reserve officials expressed caution over the global growth outlook, prompting traders to reassess the pace of future U.S. interest rate increases. The greenback has enjoyed a strong run this year thanks to the Fed's steady policy tightening on the back of a robust economy and rising wage pressures. A fourth rate hike for this year is expected next month and policy makers had indicated two more by June 2019.

 

Bond Market Ahead :

The outcome of the government and RBI meet will decide the future course of the market. Lower oil price ; easing U.S. treasury yield and OMO purchase will keep the sentiments positive and help in easing the yield towards 7.65 percent. Two holidays in this week will keep the market in range and the volume will also get on the lower side. We can see good buying in the range of 7.80/85 levels as in the coming days the 10 year likely to move towards 7.65 percent.

 

Bond Strategy:

*  Buy 7.17 GOI 2028 around 7.83/85 with a target of 7.72 and a stop loss of 7.92 percent

*  Buy 10 year SDL in auction

 Buy 7.40 GOI 2035 around 8.07/08 with a target of 7.98 and a stop loss of 8.12 percentBuy.

 

Yield Outlook for the week

10 year Benchmark 7.17% GOI 2028 likely to move in the range of 7.72% to 7.85% levels.

 

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