Mutual Funds Commodities Research Tax Planning IPO Our Team Contact Us    
Google
Web www.equitybulls.com
Market Commentary

| More

Temporary respite for Indian bonds

Posted On: 2018-03-12 23:37:35

Radhika Rao, India Economist, DBS Bank and Eugene Leow, Rates Strategist, DBS Bank

Selling pressure in India government bonds have ebbed somewhat with yields pulling back modestly from two-year highs. Near-term movements in the 10Y yields are likely to be restricted to 7.5-7.7%, but are poised to head north towards 7.9% as the new fiscal year unfolds.

A handful of factors provide short-term relief; first up, February's CPI inflation, which eased to 4.4% YoY, decelerating for a second consecutive month from December's 5.2% YoY. Food prices pulled back, coupled with stable crude prices, which alongside a fading impact of the housing allowance and GST have calmed the headline CPI prints. With inflation undershooting the central bank's projected 5.1% average for the March 2018 quarter, pressure to shift the policy stance to hawkish will be lower at the April policy meeting. Global oil prices have also take a step back from threatening levels, though are still up ~20% vs same time last year.

Second, tight onshore liquidity conditions had previously aggravated the squeeze in the 10Y yields. In a bid to ease end-quarter/ end-fiscal liquidity shortage (Apr-Mar fiscal year), the RBI announced plans to inject INR 250bn into the banking system, via a variable repo auction every week, this month. This should provide room for banks to defer plans to raise their lending/ deposit rates in the near-term and keep a lid on short-term yields.

Finally, 10Y US Treasury yields have also been rangebound, not breaching 2.90% despite blockbuster payrolls on last Friday. Even if US CPI beats consensus (data due tonight), 3% would be a tough technical hurdle to clear in the short term. Moreover, we are increasingly wary of one-sided positioning in USTs. With UST positions still heavily net short across all tenors, yields may be vulnerable to the downside if economic data disappoints. Overnight, the bid-to-cover ratio for the 10Y auction also improved to 2.50 (from 2.34 previously) suggesting that higher yields may be drawing in buyers.

Overall, these improved conditions have nudged 10Y India yields off highs, but we suspect that the rally in bonds may not have much further to go. With appetite subdued from domestic (particularly public-sector banks) and foreign players (further increases in debt limits appear unlikely), 10Y yields are likely to find some support at 7.5%. We maintain that yields are likely to edge higher in the new fiscal year - when the centre's borrowing plans become clearer and fiscal costs get factored in.


Source: Equity Bulls

Click here to send ur comments or to feedback@equitybulls.com





Other Headlines:

Market View - Mr. Abhijeet Dey - BNP Paribas Mutual Fund

Nifty needs to close past 11340 to show some corrective upside

All eyes will be on crude oil movement and INR in the coming week : Epic Research

After a decline, appearance of Hammer pattern indicates a trend reversal

Nifty recovered some ground, Metal universe poised for strong move: Angel Broking

Nifty will consolidate next week before any fresh breakout on either side defining the short term trend : Epic Research

Bullish Hammer activated, further recovery on cards: Angel Broking

Oversold levels may allow for further bounce towards 11500-11540

Smart tail-end recovery looks encouraging, 'Metal' to continue outperformance: Angel Broking

Nifty has formed big red candle stick pattern on daily chart - Equity99

Still just a profit booking and not a trend reversal: Angel Broking

Market will look for IIP and Inflation data in Mid September : Epic Research

The index is likely to enter into a corrective trend - Market Strategy Aug 31, 2018 - Share India Securities Ltd

No obstacle seen before 11900, do watch out for 'Metal' space: Angel Broking

Further liberalization can help double rural income faster in India - Rajiv Ranjan Singh

Weekly Market Outlook - Rahul Sharma, Senior Research Analyst, Equity99

Floods to have a significant impact on the Kerala economy - Acuité Ratings & Research

Nifty expects to range between 11430 - 11600 for coming week market : Epic Research

Large caps and blue chips leading momentum for coming week market : Epic Research

Nifty has a strong support for 11295-11235 for coming week - Equity99

Keep using declines, further legs to unfold: Angel Broking

Economy Update: Monetary Policy - Kotak

Nifty eying 11400 - 11500, keep participating without any hesitation: Angel Broking

RBI policy leading the coming week market : Epic Research

Nifty enters uncharted territory, still long way to go: Angel Broking

Hitting record highs is merely a formality now: Angel Broking

Heavyweights results will drive market for next week : Epic Research

Market gearing up for new highs: Angel Broking

Midcap index is in process of bottoming out: Angel Broking

Expect choppy moves in index, better to continue with stock centric approach: Angel Broking

Crude price and its impact will drive coming week market - Epic Research

Benchmarks once again stuck in a range: Angel Broking

Metals, real estate and fertilizers to perform well in July series : Epic Research

Majority of longs have been lightened - The Rollover Report: Angel Broking

Markets in a corridor of uncertainty: Angel Broking

10650 - Probably a trend deciding level: Angel Broking

All's well that ends well: Angel Broking

OPEC meet and trade war fear will keep the markets jittery : Epic Research

10700 - 10650 remains to be a crucial support: Angel Broking

Boredom continues as index gyrates in a slender range: Angel Broking

US-Sino trade war hits risky assets hard: Angel Broking

North Korea and the US finally smoke the pipes of peace: Angel Broking

IIP gets closer to 5% mark for April: Angel Broking

Stronger hands writing Index Puts - Angel Broking

Index continues its lethargic move: Angel Broking

Nifty reluctant to remain below 10558: Angel Broking

Market Quote by Anita Gandhi, Whole Time Director at Arihant Capital Markets

Market Quote by Gaurav Jain, Director, Hem Securities

Karnataka Election and Q4 Result is trigger for coming week market - Epic Research

Some hopes built ahead of Karnataka elections: Angel Broking





Website Created & Maintained by : Chennai Scripts
West Mambalam, Chennai - 600 033,
Tamil Nadu, India

disclaimer copyright © 2005 - 2018