Government Security Market:
The yield on the existing 10-year note climbed to 5.88% on Tuesday, the highest for a benchmark bond in four weeks on the news of the new sale. The government has already sold about 1 trillion rupees ($13.4 billion) of the benchmark 10 year bond since it was first issued in May. The yield on 10 year benchmark gradually improved to 5.79 percent on Thursday as good buying seen around 5.88/87 level and the market also reacted positively to the Fed Policy outcome as they kept the rates near zero and guided for some unconventional tools to accelerate the growth engine. During the week the eleven states sold 3 to 30 years of the loan in the range of 4.54 to 6.50 percent. In a Treasury Bill auction the Reserve Bank of India sold 91; 182 & 364 DTB at a yield of 3.2979; 3.3901 & 3.5195 percent respectively. The government introduced the new 10 year benchmark at a yield of 5.77% and reissued 5.09% GOI 2022; GOI FRB 2033 & 7.19% GOI 2060 at a yield of 4.0017; 4.5877 & 6.4060 percent respectively. The yield on the 5.79% government bond due May 2030 rose to 5.8385% from last week level of 5.8049% .
Global Debt Market:
The U.S. 10-year Treasury note yield fell as low as 0.520% in overnight trading on early Friday, matching levels last seen in March 9 when the benchmark maturity rate to an all-time low after worries about the COVID-19 pandemic sent investors scurrying into safe haven assets. The years of steady economic growth and low inflation have pushed the Federal Reserve’s benchmark fed funds interest rate progressively lower, leaving less room for the central bank to ease monetary policy further. As the Fed’s policy interest rate fell after economic downturns in 2008 and in 2020, the central bank has been forced to adopt other unconventional monetary policy tools such as outright bond purchases to support economic growth. The 2-year note rate edged a basis point lower to an all-time low of 0.111%, contributing to a 4 basis point decline over the week and month. The 30-year bond yield was at 1.198%%, leaving its weekly drop of 4 basis points and monthly fall of 21.2 basis points intact.
Bond Market Ahead:
The market will get into the RBI MPC Policy meet and street is divided on RBI MPC action on repo rate as higher CPI numbers of June which was above the RBI's mandate of 6% has put the question mark. But the experts at RBI MPC are very clear that the CPI numbers are distorted because of the lockdown as clearly indicated by the WPI numbers. Therefore, we have a strong conviction that the Monetary Policy panel will maintain the rate easing cycle to accelerate the growth. Pausing at this juncture will not suffice the requirement as the momentum will get break for the crucial business period of three to five months. The monsoon is good and likely to ease the pressure of higher food and vegetable price and the business activities likely to pick up from here which will help in growing the economic activities with higher pace if the interest rates remains low. We expect the market to open on positive note on Monday, as the global bond yields are at all time low and RBI MPC decision of 25bps rate cut will keep the trend lower.
* Buy 5.79% GOI 2030 around 5.84 with a target of 5.74 and a stop loss of 5.88 percent.
* Buy 6.19% GOI 2034 around 6.17/18 with a target of 6.10 and a stop loss of 6.22 percent.
* Buy 10 Year SDL in auction
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