Published on 18/10/2021 2:48:05 PM | Source: GEPL Capital

The Weekly View - Debt Market Watch By GEPL Capital

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Government Security Market: Update

Retail inflation, as measured by the Consumer Price Index (CPI), grew at 4.35% in September 2021. Between May and September, inflation has come down by 195 basis points. Food inflation has come down from 5.15% in June 2021 to 0.68% in September 2021. The latest food inflation figure is the lowest since March 2019, when it grew at 0.3%. Non-food inflation has been hovering around the 7% mark during this period. Some relief to the market after the lowest number printed for the month of September 2021, the 10- year benchmark moved 2 basis points down but gave up the gain as the auction cut-off came around 6.33 percent. The Reserve Bank of India sold GOI FRB 2034 & 6.76% GOI 2061 at a yield of 4.4366 & 7.1481 percent respectively. In a weekly state loan auction, the nine states sold 8 to 20 years loans in the range of 6.75 to 7.14 percent. In a Treasury bill auction the RBI set a cut-off at 3.3937; 3.6447 & 3.8998 percent for 91; 182 & 364 DTB respectively. The yield on the 6.10% government bond due December 2031 rose to 6.3280% from last week level of 6.3178%


Global Debt Market: Update

The U.S. Treasury yield dipped on Thursday as producer inflation reading was lower than expected. The 10-year benchmark 3.10 basis points to 1.518 percent and closed on Friday at 1.57 percent. September’s producer price index released Thursday came in slightly lower than anticipated with wholesale prices rising 0.5% from the month prior versus the 0.6% Dow Jones estimate. The consumer price index rose 0.4% month-on-month, versus a Dow Jones estimate of 0.3%. The index showed prices had grown 5.4% year-on-year, compared with an expected print of 5.3%. Also released Thursday, initial jobless claims for the week ended Oct. 9 fell below 300,000 for the first time since the pandemic began. The initial claims totaled 293,000, below the 318,000 estimates. Federal Reserve officials broadly agreed last month they should start reducing emergency pandemic support for the economy in mid-November or mid-December, even as the delta variant continued to create headwinds. They were close to beginning to scale back $120 billion in monthly asset purchases and Chair Jerome Powell told reporters the process could start as soon as November and would likely end around mid-2022.


Bond Market Ahead:

Indian bond yields are likely to ease from the current rate of 6.33 percent as the retail inflation for September eased substantially to 4.35 percent; U.S. 10-year benchmark yield easing from 1.64 to 1.57 percent; good demand for the longer end bonds in the weekly auction. The accumulation was seen at the current levels and a bounce of 5 to 8 basis points is expected this week. On October 18, the government is scheduled to switch two short-term bonds – the 5.09 percent, 2022 paper, and the 8.08 percent, 2022 paper (maturing on April 13, 2022, and August 2, 2022) with three longer-term floating rate bonds – the FRB 2028 bond, the FRB, 2031 bond and the FRB 2034 bond. In the next financial year, the government’s debt repayments are scheduled at a humongous Rs 4.2 lakh crores. If the government and RBI do not manage to bring this figure down significantly, gross borrowing – the sum of the government’s net cash requirement plus redemptions is likely to outstrip the earlier record high of roughly Rs 13 lakh crore and to avoid this the RBI has requested the SBI, to purchase a large quantum of bonds in the conversion auction as per the multiple sources told


Bond Strategy:

* Buy 6.10% GOI 2031 around 6.33/34 with a target of 6.25% and a stop loss of 6.38 percent.

* Buy 6.76% GOI 2061 around 7.14/15 with a target of 7.06% and a stop loss of 7.18 percent.

* Buy 7.05% Kerala SDL 2036 around 7.05 with a target of 7% and a stop loss of 7.08 percent.


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