Ten-year bond benchmark to trade between 7.87% and 8.00%

For the past two weeks, longer end of government securities & OIS curves seem to be undergoing re-pricing of trading ranges.

The same, however, is not drawing support from the remaining parts of respective curves yet. This week, we expect the shorter end trading nervously and longer end pushing towards its new range gradually.

There may be more good news than bad news for yields, as liquidity has turned comfortable, RBI’s hawkish tone has softened (more importantly, before the September 16 review), we draw towards the close of first-half government borrowing programme and the market delta seems relatively light.

This is supported by global falling yields and oil prices and jittery risk appetite. Our expected trading ranges for next week: 10Y GOI security benchmark (7.80% ’20) in 7.87-8.00%, 1Y OIS in 6.08-6.23% and 5Y OIS in 6.90-7.05%.

Analysing the forthcoming Rs 11,000-crore government security auction, we expect bullish cut-offs than those experienced in the recent past. 7.80% ’20 paper is again expected to be one of the auction securities for the 10-14 year bucket with markets dropping their apprehension of it turning illiquid.

Our research expects a cut-off between 7.945 and 8.00% (lower than last 7.80% ’20 cut-off of 8.03% with devolvement). For the 5-9 year bucket, we expect the RBI to continue with 7.17% ’15 paper and expect a cut-off in the 7.66-7.71% range.

(The author is Managing Director of Derivium Tradition Securities ( India))