India Fixed Income Market Snapshot : Money Matters Financial Services Limited

Indian federal bond prices snapped a four day winning streak on Wednesday as traders booked profits ahead of a debt auction on Friday that will introduce a new ten year paper. Traders remained bullish as the bond market is increasingly betting the RBI will cut interest rates on June 18 as growth concerns are expected to trump inflation worries at the central bank. The views are getting stronger of a interest rate cut due to fall in GDP, falling inflation and the oil prices globally. There is profit taking going in the market presently. With the hopes of rate cut buying should emerge at low levels. The 10Y benchmark yield rose 4bps to 8.37%, after yields slumped 15 bps over the previous four sessions. Some selling is also expected as traders prepare for debt auction on Friday. Central bank will sell 70 billion rupees of a new 10 year paper. The move had been widely expected given the existing benchmark has a hefty 830 billion rupees in outstanding paper. The absence of OMO this week also contributed towards lower bond prices. Yields are expected at 8.35-8.40% band. OIS rises up on improved risk appetite globally

Overnight indexed swaps ended higher on Wednesday as strong risk appetite globally prompted traders to pay fixed rates. The one-year OIS ended at 7.66-7.71% from Tuesday's close of 7.60-7.66%, while the five-year OIS ended at 7.30-7.36%, compared with 7.24-7.30% previous close. Globally, sentiment has strengthened and the euro was holding up. ECB's (European Central Bank) meeting and (US Federal Reserve chairman) Bernanke talking are seen as important triggers. The euro, which also indicates global risk appetite, rose against the US dollar as finance ministers of the Group of Seven nations reportedly discussed policy steps for financial and fiscal union in Europe. The five-year OIS witnessed more paying pressure on strong global cues, while the paying interest was comparatively low in the one-year OIS rate amid expectations of rate cut by the Reserve Bank of India at its next policy review on Jun 18. The steep fall in swap rates last week also prompted some traders to unwind received positions. OIS rates had fallen sharply on hopes of a rate cut by the RBI after India's gross domestic product grow at a lower-than-expected pace and also tracking the global risk aversion due to the Eurozone debt crisis. Global risk appetite may also get impacted by ECB President Mario Draghi's comments at a press conference due shortly. However, sentiment is likely to remain cautious ahead of US Federal Reserve Chairman Ben Bernanke's congressional testimony on Thursday. Rajesh Sharma CMD Money Matters Financial services Ltd said the one-year OIS is seen in the 7.60-7.80% range, while the five-year swap may move in the 7.25-7.45% band.

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