• 22 FEB
  • Knight Snippet
  • 22/02/2021

Transcript

Good Morning Treasurers,

This is your host Parthesh Shah, Co-Founder of Knight Fintech and you are listening to Knight Snippets.

Here is all what you need to know before going into trade for 22-Feb-2021.

International Market:
- The “taper tantrum” in 2013 was a sudden spike in Treasury yields due to market panic after the Federal Reserve announced that it would begin tapering its quantitative easing program

- Major central banks around the world have cut interest rates to historic lows and launched unprecedented quantities of asset purchases in a bid to shore up the economy throughout the pandemic

- However, the recent rise in yields suggests that some investors are starting to anticipate a tightening of policy sooner than anticipated to accommodate a potential rise in inflation

- US 10-year closed 5 bps higher at 1.34% and 30-year closed 8bps higher at 2.14%

- As we have said previously, buyers to emerge at 1.30% levels and if there is no such strong interest, 10-year's next destination will be 1.50%

- Germany 10-year is now at -0.30%, which usually used to hover around -0.55% to -0.65%

Crude Oil Market:
- Crude is trading at $63.39/bbl;  

- Crude short term range: $62-65

- Our crude's $70/bbl is on-track

Currency Market:
- Dollar index (DXY) is at: 90.27

- Again, DXY is finding a support at 90.20/90.30 levels and we have to be careful here

- The psychological 90.00 level is critical beyond which it will try to touch 89.20

- DXY today's range: 90.00 - 90.81

- The Chinese new year holidays are over and markets are open now

- USDCNY or Chinese yuan is at 6.49

- USDINR with a high of 72.78,  closed at 72.65 on Thursday

- USDINR range: 72.50 - 72.85

Domestic Market:
We have few data points for you to analyze the market:

Let us start with Data Point#1:

18-Feb-2021 G-Sec auction analysis:

- 5.15 GS 2025 G-Sec auction for Rs. 11,000 Cr  

Outcome: RBI accepted only Rs. 300 Cr from Rs. 11,000 Cr auction at 5.59% yields and rest Rs. 10,700 Cr were devolved on Primary Dealers

- 5.85 GS 2030 also had a G-Sec auction for Rs. 11,000 Cr  

- Outcome: RBI accepted only Rs. 106 Cr from Rs. 11,000 Cr auction at 6.06% and rest Rs. 10,894 Cr were devolved on Primary Dealers

 

Data Point#2:

The underwriting fees for participating in G-Sec auction for Primary dealers was 44 and 49 paisa respectively for 5 and 10 year bonds which was at least 5-7times higher than the usual fees paid by RBI and 15 paisa higher than anticipated in polls  

Data Point#3:
Let's look at Thursday's trading data:

Net buyers of G-Sec:

Public Sector Banks: Rs. 2,135 Cr  

Private Sector Banks: Rs. 1,167 Cr  

OTHERS: Rs. 2,656 Cr

Net Sellers of G-Sec:
Foreign Banks: Rs. 2,787 Cr

Primary Dealers: Rs. 4,122 Cr

Now, let's analyze the above data points:

Data Point#1: The devolvement on Primary Dealers in the tunes of ~Rs. 22,000 Cr

- This clearly shows the lack of market participants in the bond auctions at artificial levels

- We at Knight Research have continuously been vocal about this and RBI has to let market find its equilibrium yields at which the market is comfortable

- The yield suppression from RBI is making things worse

Data Point#2: Higher than anticipated underwriting fees

- Even the Primary Dealers are afraid that the markets will not give them enough bids for auctioned securities

- Hence, they are charging an abnormal underwriting fees, which is a clear indicator for weak demand

Data Point#3: The daily trading data

- It was clear from the data that, RBI intervened in the secondary market on Thursday but did not buy the entire devolved stocks in 5.25 GS 2025 and 5.85 GS 2030, which means the Primary Dealers are still holding at least Rs. 6000 Cr+ these securities which they will offload in secondary market very soon/RBI will but it back

- Public and Private sector banks have started buying, albeit a very small quantum, but they are hopeful of RBI intervention and hence, started taking small positions as they were light on position before the budget

5.15 GS 2025 closed at 5.70% Vs 5.59% the previous trading day; a straight 11bps increase in a single day

5.85 GS 2030 closed at 6.13% Vs 6.03% the previous trading day; a straight 10bps increase in a single day

How do we, at Knight Research are looking at the market with this data?

#1: RBI will have to make peace with the yields and let the market freely find its' equilibrium yields.

It may be 6.25% or 6.30% or 6.40% and then start supporting that yield. We do not know the exact range, market will select the comfort here in the new brave world, where the growth is coming back so is the inflation and we have unprecedented borrowings (in turn higher supply amid improving credit scenario)

#2: As we have been saying in the last 2-3 months, yield rise is certain, globally as well as domestically

#3: Please understand the duration risk in your portfolio and take necessary actions  

If you have concerns for your provisioning and need some help or need to shield your portfolio from upcoming wave of rising yields, you can reach out to us on 99 3030 7466 or research@knightfintech.com

That's it for today.  You were listening to Knight Snippets with Parthesh Shah from Knight Fintech.

See you tomorrow with a new episode of Knight Snippets.

Macro Economic Events

Indicator Last Expected AsOn Next
Stock Investment by Foreigners   [JP] 330.1 463.2 22/02/21 26/02/21
Bank Loan Growth YoY   [IN] 5.90 6.00 22/02/21 26/02/21
Foreign Direct Investment JAN   [BR] 1,514 739 22/02/21 24/02/21
Inflation Rate MoM JAN   [JP] -0.50 -0.30 15/02/21 19/02/21
Current Account   [BR] 202.0 -5,400.0 22/02/21 24/02/21
Jobless Claims 4 Week Average   [US] 833.3 836.8 22/02/21 25/02/21
GDP Growth Rate YoY   [IN] -23.9 -7.5 22/02/21 26/02/21
Foreign Exchange Reserves   [IN] 583,700 6,075,400 22/02/21 26/02/21
Industrial Production MoM JAN   [SG] 2.40 7.50 22/02/21 26/02/21
GDP Growth Rate YoY   [US] 0.0000 4.0000 22/02/21 25/02/21
Current Account JAN   [BR] 202.0 0.0 22/02/21 24/02/21
Loan Prime Rate 1Y   [CN] 3.85 3.85 19/02/21 22/02/21
Public Sector Net Borrowing JAN   [GB] -34,109 -26,149 15/02/21 19/02/21
Pending Home Sales YoY JAN   [US] 16.6 21.4 22/02/21 25/02/21
Private Sector Credit YoY JAN   [AU] 0.30 0.10 22/02/21 26/02/21
Consumer Confidence FEB   [KR] 95.4 89.9 19/02/21 23/02/21
Retail Sales MoM JAN   [GB] 0.30 -4.10 15/02/21 19/02/21
Retail Sales MoM JAN   [JP] -0.80 -2.00 22/02/21 25/02/21
Interest Rate Decision   [KR] 50.0 0.5 22/02/21 24/02/21
Infrastructure Output YoY Jan   [IN] -1.40 -1.30 22/02/21 26/02/21
Housing Price Index YoY JAN   [CN] 4.00 3.80 19/02/21 23/02/21
Inflation Rate YoY JAN   [SG] -10.00 0.00 19/02/21 23/02/21
Retail Sales MoM JAN   [GB] 2.10 2.90 15/02/21 19/02/21
Retail Sales YoY JAN   [JP] 0.60 -0.30 22/02/21 26/02/21
PPI YoY JAN   [KR] -0.30 0.10 15/02/21 19/02/21
Government Budget Value   [IN] -10,755 -11,585 22/02/21 26/02/21
Import Price YoY JAN   [SG] 91.8 93.3 22/02/21 26/02/21
Markit Services PMI FEB   [US] 54.8 58.3 15/02/21 19/02/21
Inflation Rate MoM JAN   [SG] 0.40 0.40 19/02/21 23/02/21
Foreign Bond Investment   [JP] 1,029 477 22/02/21 26/02/21
Markit Manufacturing PMI FEB   [US] 57.1 59.2 15/02/21 19/02/21
Inflation Rate YoY JAN   [JP] 0.0000 -0.9000 15/02/21 19/02/21
Industrial Production YoY JAN   [SG] 18.7 14.3 22/02/21 26/02/21
Industrial Production YoY JAN   [JP] -3.90 -2.60 22/02/21 26/02/21
Export Price YoY JAN   [SG] 90.4 89.7 22/02/21 26/02/21
Business Confidence FEB   [KR] 85.0 82.0 22/02/21 24/02/21
Private Capital Expenditure QoQ   [AU] -3.00 3.00 22/02/21 25/02/21
Existing Home Sales MoM JAN   [US] 6,710 6,760 15/02/21 19/02/21
Business Confidence FEB   [BR] 60.9 63.1 15/02/21 19/02/21
Initial Jobless Claims   [US] 848.0 861.0 22/02/21 24/02/21
Core Inflation Rate YoY JAN   [SG] -0.1000 -0.3000 19/02/21 23/02/21
PPI MoM JAN   [KR] 103.8 103.1 15/02/21 19/02/21
Federal Tax Revenues JAN   [BR] 140,101 159,100 15/02/21 19/02/21
Markit Manufacturing PMI FED   [AU] 55.6 0.0 15/02/21 19/02/21
Deposit Growth YoY   [IN] 11.4 11.1 22/02/21 26/02/21
Loan Prime Rate 5 Y   [CN] 0.0000 0.0000 19/02/21 22/02/21
Bank Lending MoM JAN   [BR] 2.10 1.60 22/02/21 24/02/21
Foreign Exchange Reserves   [IN] 590,190 583,950 15/02/21 19/02/21
Private Sector Credit MoM   [AU] 0.1000 0.3000 22/02/21 26/02/21

Auctions

Knight Statistical Poll vs. Actual Results
Security Name Tenure Notified Amount Expected
Cut-Off
Recommended At Actual-Cut-Off Amount Accepted Auction Type Announcement date Auction Date Settlement Date Source
7.20% GASDL 2031 10 Y 200 7.08% - 7.15% 23/02/21 15:31 7.20% 200 Yield 18/02/21 23/02/21 24/02/21
7.07% GJSDL 2031 10 Y 1000 7.08% 23/02/21 15:30 7.07% 1000 Yield 18/02/21 23/02/21 24/02/21
7.08% CHSDL 2029 8 Y 1000 7.00% 7.05% 23/02/21 15:29 7.08% 1000 Yield 18/02/21 23/02/21 24/02/21
7.03% MPSDL 2031 10 Y 3000 7.08% - 7.15% 23/02/21 15:28 7.23% 3000 Yield 18/02/21 23/02/21 24/02/21
7.35% KASDL 2039 18 Y 1000 7.20% -7.30% 23/02/21 15:27 7.35% 1000 Yield 18/02/21 23/02/21 24/02/21
6.22% GS 2035 15 Y 11000 - 01/03/21 12:07 94.60 8868 Price 22/02/21 26/02/21 01/03/21
7.24% ASSDL 2031 10 Y 1000 7.08% - 7.15% 23/02/21 15:49 7.24% 1000 Yield 18/02/21 23/02/21 24/02/21
6.76% GS 2061 40 Y 7000 6.80% - 6.85% 19/02/21 10:30 6.76% 3501 Yield 12/02/21 19/02/21 22/02/21
7.23% WBSDL 2041 20 Y 2000 7.20% -7.30% 23/02/21 15:29 7.23% 2000 Yield 18/02/21 23/02/21 24/02/21
6.30% PDSDL 2026 5 Y 150 6.25% - 6.30% 23/02/21 15:33 6.30% 150 Yield 18/02/21 23/02/21 24/02/21
6.70% ASSDL 2027 6 Y 500 6.60% - 6.70% 23/02/21 15:35 6.70% 500 Yield 18/02/21 23/02/21 24/02/21
6.67% GS 2050 30 Y 5000 - 01/03/21 12:06 98.34 2503 Price 22/02/21 26/02/21 01/03/21
7.35% KASDL 2040 19 Y 1000 7.20% -7.30% 23/02/21 15:45 7.35% 1000 Yield 18/02/21 23/02/21 24/02/21
6.95% TNSDL 2031 10 Y 2500 7.08% - 7.15% 23/02/21 15:44 7.16% 2500 Yield 18/02/21 23/02/21 24/02/21
364 DTB 24/02/2022 364 D 8000 3.71% - 3.73% 24/02/21 15:58 3.70% 8000 Yield 18/02/21 24/02/21 25/02/21
7.08% MHSDL 2031 10 Y 1000 7.14% 23/02/21 15:43 7.08% 1000 Yield 18/02/21 23/02/21 24/02/21
7.22% KASDL 2038 17 Y 1000 7.20% -7.30% 23/02/21 15:40 7.22% 1000 Yield 18/02/21 23/02/21 24/02/21
91 DTB 27/05/2021 91 D 4000 3.18% - 3.20% 24/02/21 15:56 3.1699% 4000 Yield 18/02/21 24/02/21 25/02/21
7.22% RJSDL 2041 20 Y 500 7.08% - 7.15% 23/02/21 15:39 7.22% 500 Yield 18/02/21 23/02/21 24/02/21
7.20% UPSDL 2031 10 Y 4000 7.17% 23/02/21 15:37 7.20% 4000 Yield 18/02/21 23/02/21 24/02/21
7.05% PNSDL 2031 10 Y 500 7.08% - 7.15% 23/02/21 15:51 - 0 Price 18/02/21 23/02/21 24/02/21
7.18% HRSDL 2041 20 Y 1000 7.20% -7.30% 23/02/21 15:36 7.18% 1000 Yield 18/02/21 23/02/21 24/02/21
4.48% GS 2023 3 Y 4000 - 01/03/21 12:08 99.19 1345 Price 22/02/21 26/02/21 01/03/21
7.19% SKSDL 2031 10 Y 100 7.08% - 7.15% 23/02/21 15:38 7.19% 100 Yield 18/02/21 23/02/21 24/02/21
3.96% GS 2022 2 Y 2000 99.30 - 99.35 19/02/21 10:29 99.39 2145 Price 12/02/21 19/02/21 22/02/21
7.20% JHKDL 2035 14 Y 1000 7.20% -7.30% 23/02/21 15:50 7.20% 1400 Yield 18/02/21 23/02/21 24/02/21
7.22% APSDL 2037 16 Y 1314 7.20% -7.30% 23/02/21 15:32 7.22% 1314 Yield 18/02/21 23/02/21 24/02/21
7.34% TRSDL 2036 15 Y 142 7.20% -7.30% 23/02/21 15:43 7.34% 142 Yield 18/02/21 23/02/21 24/02/21
182 DTB 26/08/2021 182 D 7000 3.50% - 3.55% 24/02/21 15:57 3.4808% 7000 Yield 18/02/21 24/02/21 25/02/21

Credit Research: Exposures and Next IP Dates

Sikka Ports and Terminals Ltd.

Debenture

East West Pipeline Ltd.

Bonds/NCDs

News Bites

To stay updated with us click here for news bites.

Daily Research Report

Click here for Daily Research Reports.