Published on 10/07/2017 4:14:43 PM | Source: GEPLCapital Ltd

10 year Benchmark 6.79% GOI 2027 likely to move in the range of 6.48% to 6.56% levels - GEPL

Posted in Mutual Fund Analysis | #GEPLCapital Ltd #Mutual Fund


Government Security Market: Update

Government debt securities saw robust response from foreign investors, attracting bids worth USD 4.6 billion as against USD 3.2 billion on offer. Foreign portfolio investors (FPIs) have bid for investment limits in government debt securities worth Rs 29,950 crore (USD 4.62 billion) as against Rs 20,397 crore (USD 3.15 billion) on offer, exchange data showed. The total investment in government debt has reached Rs 1,68,143 crore till July 3 -- 90.94 per cent of the total permitted limit of Rs 1,84,901 crore, as per the latest data available with depositories. Even the participation in the first OMO Sale of this financial year was aggressive as the Reserve Bank of India received bids worth INR 60K Crore versus the auction amount of INR 10K crore. The RBI sold 8.79% GOI 2021; 7.68% GOI 2023; 7.72% GOI 2025 & 8.97% GOI 2030 at a yield of 6.7045; 6.7982; 6.9292 & 7.1735 respectively and in 7.28% GOI 2019 the RBI rejected all the bids. Later during the week under a weekly auction the RBI sold 6.84% GOI 2022; 6.79% GOI 2029; 6.57% GOI 2033 & 6.62% GOI 2051 at a yield of 6.6832; 6.8571; 6.9602 & 7.1901 respectively. After the auction result the market reacted positively and 10 year managed to close at 6.53 levels.

The yield on the 6.79% government bond due May 2027 rose to 6.53% % from last week level of 6.5110%

 

Global Debt Market: Update

Global bond yields have been rising as the world's central banks look set to move away from extremely easy policies. The Federal Reserve is about to take the unprecedented step of reducing the balance sheet it built up to save the economy from the financial crisis. Since June 26, the U.S. 10- year yield has risen from 2.12 percent to Thursday's high of 2.38 percent. The move has been global, after European Central Bank President Mario Draghi last week pointed to a less risky outlook for the European economy , and Fed officials made consistently hawkish remarks. Some of those officials said they were even concerned that their policies created a too easy financial environment, meaning interest rates should be higher. The Fed, which has moved its target rate range to 1 to 1.25 and plans to raise rates again this year. Clear from the minutes of its last meeting, the Fed also plans to begin reducing the amount of Treasury and mortgage securities held on its balance sheet by slowly ending a program of replacing the securities as they mature. It expects to begin with, at most, a $10 billion taper in purchases for three months, and then increase it gradually .

 

Bond Market Ahead:

Globally the yields have harden after the ECB indicate winding of stimulus and a strong US non farm payroll data released on Friday. Indian 10 year government bond yield will be in the range of 6.50/55 till the macro data to be released on 12 and 14 of this month. CPI numbers will give the direction to the market. A soft data is expected despite some seasonal upstick in the price of the vegetables. Global oil prices is stable and likely to be in the range of $45 to 50/bl in the next few months. On the part of managing the liquidity the RBI had started with OMO sale last week and we can expect a series of OMO Sale to the tune of 30 to 40k crore in the coming time. This will keep the yield in the range and can build pressure on the market 

 

Bond Strategy :

* Buy 6.79 2027 around 6.54/56 with a target of 6.48 and a stop loss of 6.62 levels.

* Buy 6.57 2033 around 6.93/95 with a target of 6.85 and a stop loss of 6.98 levels

* Buy 6.62 2051 around 7.15/17 with a target of 7.07 and a stop loss of 7.21 levels 

 

Yield Outlook for the week

10 year Benchmark 6.79% GOI 2027 likely to move in the range of 6.48% to 6.56% levels

 

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