04 January 2013
Have a great day and Good luck..............................Moses Harding
Interest rate market
10Y Bond is extending gains below 7.97-8.0% into the next objective at 7.90-7.93%; need clarity on the timing of interest rate cut as funding of investments will be at “negative carry” from now on till 25-50 bps rate action. There are two options now; clarity on early rate action will drive 10Y yield into 7.65-7.90% consolidation and signs of delay beyond January-March 2013 will push 10Y yield into 7.95-8.10%. The data print on headline inflation will be very critical from now on. For today, let us watch consolidation at 7.90/7.93-7.97/8.0. There will be significant “long unwinding” at 7.90-7.93% while 7.97-8.0% will attract good demand. Fleet footed traders can trade end-to-end with tight stop on break while strategic investors can part unwind (longs entered at 8.18-8.23%) on excessive gains below 7.90% with trail stop at 7.97%.
OIS rates steady and is heavy at/above 7.60% in 1Y and at/above 7.13% in 5Y. The near term outlook is soft riding the interest rate play for immediate objective at 7.48-7.53 and 6.98-7.03 respectively. While it is prudent to chase the 1Y rate below 7.48, risk-reward will be poor to stay received in 5Y OIS at 6.98-7.03% where discount in 1X5 is expected to squeeze (into par before end of 2013). For today, let us continue to stay with set trading range of 7.53-7.60/7.63 in 1Y and 7.03-7.13/7.18 with bias into lower end. The strategy is to stay “received” at 7.60-7.63% in 1Y and 7.13-7.18% in 5Y with tight stop on break for 7.48-7.53% and 6.98-7.03%.
FX premium is steady at set ranges of 6.60-6.85% (3M) and 5.60-5.85% (12M). The near term outlook is soft riding the interest rate play while cues in exchange rate play is mixed tracking back-and-forth trades in USD/INR at 54.10-55.10. The short term bias is however for move into 6.15% and 5.4% respectively while bullish momentum into 7% and 6% will attract. For today, let us continue to stay with set trading range of 6.60-6.85% (3M) and 5.60-5.85% (12M), break either-way to attract. The strategy is to trade end-to-end and stay received for eventual extension into 6.15% and 5.4%.
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