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Published on 26/06/2018 4:57:33 PM | Source: GEPLCapital Ltd

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

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

Government Security Market:

Update The benchmark 10 year yield fall to 7.76 per cent in the week as two positive news from the Reserve Bank of India, one increase in the FPI limits and second an announcement of OMO Purchase. Later after the weekly auction the traders booked the profit and yield rose as much as to 7.85 per cent on Friday, before it manage to close at 7.8189 per cent. OPEC decided to increase the supply by 1 million barrel per day from July 2018. Indian bonds faced foreign outflows of $2.9 billion, while Indonesian bonds saw outflows of $830 million. India and Indonesia have the biggest current account deficits in the region and are thus vulnerable if they have to attract foreign money to foot bigger oil bills. During the week the Reserve Bank of India sold 3 & 10 years State Loan at 8.33 & 8.40 per cent respectively. Also sold 91; 182 & 364 DTB at a yield of 6.4805; 6.8869 & 7.0973 per cent respectively. The weekly auction saw the cut off of 6.55% GOI 2020; 7.59% GOI 2026: 2031 FRB; 6.57% GOI 2033 & 7.06% GOI 2046 at a yield of 7.4060; 8.0263; 7.8704; 8.0995 & 8.1002 per cent respectively. The yield on the 7.17% government bond due May 2028 fell to 7.8189% from last week level of 7.8891%. 

Global Debt Market: Update

US Treasury yields rose on Friday as investors tried to shake off concerns of a potentially impending trade war. The yield on the benchmark 10-year Treasury note was higher at 2.906 percent before it manage to close at 2.89 per cent, while the yield on the 30-year Treasury bond rose to 3.048 percent. Markets around the globe have been on a roller-coaster ride this week as tensions surrounding a tit-for-tat trade dispute between the U.S. and China continue to escalate. On Monday, President Donald Trump requested the United States Trade Representative identify $200 billion worth of Chinese goods for additional tariffs at a rate of 10 percent. Those tariffs followed levies announced by both nations last week. Treasury yields are down slightly for the week as investors sought out safety from the increasing trade tensions. German 10-year bund yields, meanwhile, are down more than 5 basis points this week, while the benchmark Japanese yield is also down slightly. U.S. crude posted its best daily gain since November 2016 after OPEC members agreed to only a moderate supply increase. The cartel also declined to say exactly how much more its members would pump. Analysts said the deal will likely add between 600,000 and 800,000 barrels per day, which the market can easily absorb. Asian bond markets witnessed a second consecutive month of outflows in May and will likely come under more pressure as major central banks tighten their monetary policies this year. Data from central banks and bond market associations showed foreign investors sold a total of $3.8 billion in India, Indonesia, Thailand, South Korea and Malaysian bonds in the last month. "The recent monetary policy decisions by major central banks such as the ECB announcing to end its bond buying programme soon, and the more hawkish view by the U.S. Fed may result in foreign funds leaving emerging markets in search for better yields elsewhere. 

Bond Market Ahead:

Aggressive cut off at OMO purchase from the Reserve Bank of India; OPEC decision to raise output by 1 million barrel per day; US 10 year treasury benchmark closing at 2.89 per cent; Rupee appreciating against US dollar; crude oil around $74/bl are all positives for the market. Market likely to make a big move in the coming week and at the quarter end we can see a closing below 7.75 levels. Continuation of the OMO purchase will keep the sentiments positive and will also help the market in off loading the illiquid papers from the portfolio.

Bond Strategy :

*  Buy 7.17% 2028 around 7.84/85 with a target of 7.74 and a stop loss of 7.88 levels .

*  Buy 6.68 2031 around 8/8.02 with a target of 7.94 and a stop loss of 8.07 levels. 

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. (GEPL Capital Research) 

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