Government Security Market: Update
Market moved in the tight band of 6.34 to 6.42 levels as IIP data surged to 5.7 per cent from a negative of 1.7 per cent and retail inflation moved down to 3.41 per cent. In a weekly auction the Reserve Bank of India set the cut of 10 year benchmark at 6.4031 per cent and 6.84% GOI 2022 at 6.4355 per cent; 7.73% GOI 2034 at 6.9899 per cent and 7.06% GOI 2046 at 7.0145 per cent. In this week there is no devolvement on the Primary Dealers as the market participated aggressively in the auction. The RBI sold 49 and 35 DCMB at 6.3101 and 6.2949 per cent respectively. Earlier during the week the RBI sold State Development loans in the range of 6.90 to 7.18 per cent. States sold 5; 10 and 15 years state papers.
The yield on the 6.97% government bond due May 2026 rose to 6.4168% from last week level of 6.3850%
Global Debt Market: Update
The bond bull market is more or less over as the US 10 year Treasury yield had already topped 2.62 per cent when Fed raised their key rates for second time in December 2016. The rolling five-year returns from bonds have gradually trended down since 1982. And in recent periods the returns from bonds have resembled the pre-bull market era. Long-term government bonds returned 3.3 percent annually during the five years that ended in November 2016, and just 2.6 percent annually through December 2016. The rolling five-year standard deviation of long-term government bonds has averaged 7.6 percent from 1930 to 2016, whereas the comparable standard deviation for the S&P 500 has averaged 17.2 percent. (Standard deviation reflects the performance volatility of an investment; a lower standard deviation indicates a less bumpy ride). 10 year treasury benchmark closed at 2.3964 per cent .
Bond Market Ahead:
After the release of the retail (CPI) inflation numbers market will be eyeing on the forthcoming Union budget as market want to see the government’s fiscal road map and borrowing numbers for FY 17-18. Much depends on the budget as the Reserve Bank of India will take decision on rates in the policy review in February on the outcome of the government’s budget. A range bound movement can be seen in the next 15 days and some aggressive buying expected near to the budget date. The traders will be watching the movement in the US markets as 10 year treasury yield likely to move in the range of 2.42 to 2.32 levels.
* Buy 6.97 2026 around 6.42/44 with a target of 6.34 and a stop loss of 6.48 levels
* Buy 6.57% GOI 2033 around 6.76/6.77 with a target of 6.70 and a stop loss of 6.82 levels .
* Buy DCMBs or Short term Treasury Bills.
Yield Outlook for the week
10 year Benchmark 6.97% GOI 2026 likely to move in the range of 6.34% to 6.42% levels.
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