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.
| 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 |
