Government Security Market: Update
Foreign funds have been pouring into India, driving stocks to a record and pushing up bond prices, since Prime Minister Narendra Modi’s party won an election in a key state on March 11. Yields on local 10-year bonds are among the highest in the region and the rupee’s rally post the election results has made it Asia’s best-performing currency this month. Overseas banks were the biggest buyers of government bonds on Wednesday, with net purchases of about 54 billion rupees, data from the Clearing Corp. of India show. That marked an 11th straight day of net buying. The Reserve Bank of India sold 91 DTB & 182 DTB at 5.8602 & 6.0535 per cent respectively. In the week the RBI announced the sale of SDL on March 27 for an amount of Rs.15094.34 crore and the Maharashtra State announced the repurchase of Rs.11290 crore of their SDL. 10 year benchmark closed at 6.8288 per cent. In the weekly Treasury bill auction the cut off for 91 DTB and 364 DTB came at 5.9428 per cent and 6.1853 per cent respectively.
The yield on the 6.97% government bond due Sept. 2026 fell to 6.8288% from last week level of 6.8603% .
Global Debt Market: Update
The Central Bank of Russia has lowered its benchmark one-week repo rate by 25 bps to 9.75 percent on March 24th, while markets expected no change in rates. Policymakers signaled the possibility of further cuts in the second and third quarter of 2017, as inflation slowdown overshoots the forecast, inflation expectations continue to decline and economic activity recovers. Interest Rate in Russia averaged 7.23 percent from 2003 until 2017, reaching an all time high of 17 percent in December of 2014 and a record low of 5 percent in June of 2010. The Bank takes into consideration the oil market uncertainty and keeps pursuing a conservative approach to the forecast, which assumes an oil price reduction to $40 per barrel by the end of 2017 and its further staying near this level. GDP is expected to grow by 1-1.5% in 2017 and by 1-2% in 2018- 2019 considering the current dynamics of recovery processes and higher economy resilience to fluctuations in external economic environment. It takes structural changes and time for positive trends to evolve and take root.US 10 Year Treasury moved 6bps down and closed at 2.36 per cent.
Bond Market Ahead:
Market will be entering into the last week of the financial year 2016-17 and can recover by 50 to 60 paise as the global bonds yield are eased by nearby 5bps; Oil is stable around $50/bl; rupee appreciated to 65.40 against US dollar. Another crucial point will be the news on shifting the AFS stock to HTM from the Reserve Bank of India and auction calendar for the first half of FY 2017-2018. If RBI allow shifting than we can see a significant movement in the bond prices. 10 Year benchmark can move down to 6.67 per cent. State loan auction likely to see cut off in the range of 7.60/75 levels.
Bond Strategy :
* Buy 6.97% GOI 2026 around 6.80/83 with a target of 6.72 and a stop loss of 6.87 levels
* Buy 10 year SDL in auction with a target range of 7.50/57 levels.
Yield Outlook for the week
10 year Benchmark 6.97% GOI 2026 likely to move in the range of 6.72% to 6.83% levels.
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