Published on 4/06/2018 5:13:16 PM | Source: GEPLCapital Ltd

10 year Benchmark 7.17% GOI 2028 likely to move in the range of 7.77% to 7.92% levels - GEPL

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

Government Security Market: Update

10 Year benchmark yield rallied from 7.88 to 7.72 levels in the week as the global crude oil price eased from $80/bl to $ 74/bl; rupee appreciated against US dollar; U.S 10 year Treasury yield dropped to 2.82 levels. The market couldn't sustain at 7.72 levels and yield corrected back to 7.88 levels on Friday. Overseas funds have pulled $4.5 billion from the local debt market since the start of the year. During the week the Reserve Bank of India sold 91; 182 & 364 DTB at a yield of 6.3977; 6.8011 and 6.9251 per cent respectively. Also sold 4 to 20 years State Loans in the range of 8.22 to 8.34 percent. In a weekly Government Securities auction the RBI sold 6.65 GOI 2020; 7.59 GOI 2026; GOI FRB 2031; 6.57 GOI 2033 & 7.72 GOI 2055 at a yield of 7.6226; 8.139; 7.7629; 8.003 & 7.9899 percent respectively . The yield on the 7.17% government bond due May 2028 rose to 7.8477% from last week level of 7.7942%.

Global Debt Market: Update

The U.S. economy continued to add jobs at a brisk pace in May, with nonfarm payrolls up 223000 and unemployment rate falling to 3.8 percent. The yield on the benchmark 10 year Treasury note was higher at around 2.913 percent before it manage to close at 2.88 percent, while the yield on 30 year Treasury bond was also higher at 3.062 percent. The Federal Reserve have indicated that two more interest rate hikes are likely this year in addition to the one they approved in March. The strong jobs report keeps the Fed on track to raise interest rates by a quarter point later this month.

Bond Market Ahead:

Despite easing in the global oil price and domestic oil price the market will be under pressure as the RBI MPC monetary policy meet ahead and an announcement of INR 20000 Crore 21Days Cash Management Bills have faded the scope of OMO purchase from the RBI as liquidity is ample in the system. The market will wait for the outcome of the RBI policy meet on June 6. The view and outcome on inflation targets and local currency will pave the way for the market. Recently hike in the lending rates from the top banks, SBI; HDFC; ICICI; Kotak Mahindra; PNB by 10-20 bps is already indicating the hardening of the rates. The hike reflects the increase in cost of funds in the last 6 to 9 months. Higher crude prices and softer local liquidity are pushing inflation higher.

Bond Strategy :

* Buy 7.17 GOI 2028 around 7.90/92 with a target of 7.80 and a stop loss of 7.97 levels

* Buy 21 days Cash Management Bills

Yield Outlook for the week

10 year Benchmark 7.17% GOI 2028 likely to move in the range of 7.77% to 7.92% levels.

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