Government Security Market:
Update The six-member monetary policy committee (MPC), headed by RBI governor Shaktikanta Das, kept repo rate untouched at 4 per cent; and reverse repo rate at 3.35 per cent. RBI had already cut policy rates by 115 basis points in this year and in the policy the RBI Governor was slightly hawkish on the inflation numbers and cited concern that numbers will remain elevated till September 2020 and in second half the numbers will ease due to base effect and ease in the supply. The 10 year benchmark gave up the gain by Friday, the yield moved to 5.89 percent from 5.80 percent before policy outcome. During the week the eleven states sold 5 to 30 years loan in the range of 5.49 to 6.55 percent. In a Treasury Bill counter the Reserve Bank of India sold 91; 182 & 364 DTB at a yield of 3.2815; 3.3752 & 3.4971 percent respectively. In a weekly auction the government sold 5.22% GOI 2025; 6.19% GOI 2034 & 7.16% GOI 2050 at a yield of 5.1241; 6.2356 & 6.5108 percent respectively. . The yield on the 5.79% government bond due May 2030 rose to 5.8880% from last week level of 5.8385%
Global Debt Market:
Update The yield on the benchmark 10 year Treasury yield rose to 0.549% and the yield on the 30 year Treasury bond climbed to 1.214% after the government said the U.S. economy added more than 1.7 million jobs in July, more than expected and pushing the unemployment rate back toward single digits. U.S. yields, which had drifted lower prior to the Labour Department’s monthly jobs report, moved higher after the government said the total nonfarm payroll increased by 1.763 million for the month. The unemployment rate fell to 10.2%, also better than the estimates from economists surveyed by Dow Jones. Chinese government bond yields, however, have bucked the trend, with 10- year bond yields climbing from their April lows of 2.4% to top 3%, putting them at pre-COVID-19 levels. The Chinese economy will need more easing in 2020 and beyond. Policymakers are “saving their bullets” for now, but we still anticipate further reserve requirement ratio (RRR) cuts and small reductions in benchmark lending rates heading into the end of the year. Inflation, measured by producer prices, is still negative, unemployment levels will likely remain high and export volumes and retail sales are likely to stay sluggish. This suggests that China won’t be able to rely on a strong domestic consumer or robust global recovery for help. There is a room for China’s government bond yields to retrace some of their second-quarter price losses (higher yields) and begin to position for a return to monetary easing and additional liquidity injections.
Bond Market Ahead:
Indian sovereign bonds had priced in the central bank holding rates. It was the absence of guidance on debt purchases and the extent of the economic slowdown that left traders disappointed. The RBI Governor, Mr. Das cited that GDP numbers to remain in the negative territory, without giving a specific forecast. The RBI has resorted to discreet secondary market purchases and done two Operation Twists of 100 billion rupees each this fiscal year. In comparison, Indonesia has waded deep into debt monetization. Growth worries remaining, the accommodative bias suggests scope for further easing as inflation recedes in the second half of the fiscal 2021. The RBI will step in once again with Operational Twist in a week or two to cap the rise in the yield. IIP and inflation numbers to be released on August 11 & 12, 2020 respectively. The Consumer Price Index numbers likely to remain in the range of 5.85 to 6.10 percent as some supply constraints have eased out after unlock in major parts of the country and rainfall was above average in the last two months. If the CPI numbers coming below 6% will support the market and yield may start easing further.
* Buy 6.19% GOI 2034 around 6.24/25 with a target of 6.20 percent and a stop loss of 6.30%
* Buy 7.26% GOI 2029 around 6.06/08 with a target of 5.99 and a stop loss of 6.12%
* Buy 10 Year SDL in auction
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