Government Security Market: Update
At the start of the week the RBI monetary policy was in the focus as the market was showing the big movement after the US job data was below expected numbers and raised the question whether Fed will hike rates in June policy. The Reserve Bank of India in a policy review cut SLR by 50 bps to 20 per cent and eased the inflation forecast to 2.5 to 3 per cent from 4 to 4.5 percent. 10 year benchmark yield dropped to 6.50 per cent after policy announcement. In a weekly auction the RBI sold 2024 FRB; 6.79 GOI 2027; 7.73 GOI 2034 & 7.06 GOI 2046 at 6.8164; 6.5246; 7.0126 & 7.1086 per cent respectively and 91 and 364 DTB sold at 6.2735 and 6.4346 per cent respectively.
The yield on the 6.79% government bond due May 2027 fall to 6.5014 % from last week level of 6.6478%.
Global Debt Market: Update
With the dust setting after Thursday's UK elections, the Fed June 14 decision is the next focal point for investors. In euro dollar futures where traders place bets and hedges tied to the path of Central Bank policy, the confidence is building that after Wednesday, official pause in September and resume raising borrowing cost at year end. The disappointing U.S. job data on June 2, had shift the view that Fed will go slow on raising the borrowing cost. In the middle of Britain's expected week of political question, meanwhile, comes one of the bits of post Brexit vote economic data that UK citizen have actually felt inflation. It has risen sharply mainly as a result of the pound drive against the dollar and euro that followed the referendum.
Bond Market Ahead:
The change of outlook on inflation by the Reserve Bank of India poised a rally in the market. The trend likely to be continued as the monsoon started on a positive note, so far the rainfall is recorded above normal; global crude oil is falling below $50/bl; rupee is appreciating on good inflow from the foreign investors in both Debt and Equity. In this week the market will take further clue from the upcoming inflation and IIP data and will watch keenly the action and further guidance of Fed on interest rates when they will meet on June 14 &15. The Fed is likely to hike rate by 25bps but the current job data will restrict them to take an aggressive call on rates. Positive outlook on inflation and lower GDP numbers had provided a room for a rate cut in August policy. SLR cut by the RBI in a policy will bring additional liquidity of 50 to 60k crore which will help in normalizing the rates in the system and accelerate the economic activities in the system.
Bond Strategy :
* Buy 6.79 2027 around 6.53/55 with a target of 6.45 and a stop loss of 6.62 levels
* Buy 10 Year State Loan around 7.27/30 with a target of 7.18 and a stop loss of 7.37 levels
* Buy 7.06 2046 around 7.10/08 with a target of 6.97 and a stop loss of 7.16 levels
Yield Outlook for the week
10 year Benchmark 6.79% GOI 2027 likely to move in the range of 6.45% to 6.55% levels
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