Published on 21/09/2020 4:28:26 PM | Source: GEPL Capital Ltd

10 year Benchmark 5.77% GOI 2030 likely to move in the range of 5.96% to 6.05% percent - GEPL Capital

Posted in Market Outlook| #GEPLCapital Ltd #Economy #Market Outlook

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Government Security Market:

Retail inflation numbers came at 6.69% above RBI's tolerance level for the straight fifth months. The market moved in the band of 5.97 to 6.05 percent and in Special OMO RBI bought previous benchmark 5.79% GOI 2030 at a yield of 5.9139 percent and also bought 7.37 GOI 2023 and 7.72 GOI 2025 at a yield of 4.6663 and 5.5301 percent respectively. Besides this in a week the RBI also announced OMO Purchase for an amount of Rs.10000 cr for September 24, 2020. During the week the thirteen states sold 4 to 20 years loan in the range of 5.70 to 6.84 percent. In a Treasury Bill auction the RBI sold 91; 182 & 364 DTB at a yield of 3.3195; 3.5462 and 3.6897 percent respectively. In a weekly auction the RBI sold 5.22% GOI 2025; 6.19% GOI 2034 & 7.16% GOI 2050 at a yield of 5.4483; 6.3842 and 6.7473 percent respectively. The RBI also applied green shoe option of Rs.2000 cr in 6.19 GOI 2034. The yield on the 5.77% government bond due August 2030 fell to 6.0148% from last week level of 6.0420% .

Global Debt Market:

U.S. Treasury yields stabilized within their recent trading ranges on Friday as investors took in new inflation tolerant messages from the Federal Reserve. The benchmark 10-year yield was up less than a basis point at 0.6904%. The level was within a six-basis point trading range for the note this week and close to where it stood on Wednesday before Fed leaders suggested hike rates could be years away. Top Fed officials on Friday began fleshing out how they would apply their new approach of keeping interest rates near zero until inflation has hit the Fed's 2% target and is on track "to moderately exceed" it "for some time." The U.S. current account deficit soared to its highest level in nearly 12 years in the second quarter as the COVID-19 pandemic weighed on the exports of goods and services, the Commerce Department said on Friday. U.S. consumer sentiment increased in early September, with Democrats more upbeat about the economy's outlook compared to Republicans ahead of the Nov. 3 presidential election, according to a University of Michigan survey. A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at 55 basis points, roughly unchanged since Thursday's close and well above the recent low of 33 basis points on July 24. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up less than a basis point at 0.1371%.

Bond Market Ahead:

The market will move ahead in the tight band as second borrowing plan will be released in the fourth week of this month. Due to contraction in the GDP by 23.9% and lower collections of the tax numbers may lead for borrowing more from the market to the tune of atleast Rs.2 lakh crore. The RBI trying to hold the benchmark around 6% mark by doing Special OMOs and now announced OMO Purchase of three long dated papers to the tune of Rs.10000 crore on September 24, 2020. The market is not convinced with the size of the OMO Purchase as traders want the size to be larger. The RBI will conduct a switch, a window through which it will buy back shorter-duration bonds worth Rs.24000 crore selling equivalent long term papers. This move is aim at rationalizing future maturities of the bonds. The RBI need to do more OMO purchases regularly to keep the momentum going on the street. The street is expecting OMO amount to be around 1.5 to 2 lakh crore in the second half of the FY 2020- 2021

Bond Strategy:

* Buy 6.19 GOI 2034 around 6.38/39 with a target of 6.32 and a stop loss of 6.44 percent.

* Buy 5.77 GOI 2030 around 6.03/05 with a target of 5.96 and a stop loss of 6.10 percent

* Buy 10 Year SDL in auction.


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