Key Indicators Suggest A Bond Rally
Bonds boosted by Moody’s India upgrade.
Bond market bulls have a reason to smile. Yield on the benchmark 10-year government paper has fallen since Friday after Moody’s upgraded India’s sovereign ratings first time in about 14 years. And Bloomberg’s two key indicators suggest the trend is likely to continue.
The yield fell 14 basis points intraday today as the Reserve Bank of India scrapped its sale of bonds on Nov. 23, according to Bloomberg. On Friday, after the upgrade, the yield had opened lower at 6.938 percent but was unable to hold on and settled at 7.049 percent.
The Bloomberg Trender is negative on the monthly chart at 7.157 percent. A close above this level would mean a trend reversal on the upside. The indicator uses the average true range as one of the key inputs for calculation. As of now, trender’s red line remains intact.
When it changes from red to green, it’s considered a ‘Buy’ signal, and vice versa. Since yields and bond prices move inversely, the trender’s red signal is a bullish indicator in this case.
While tracking a smaller timeframe, candle sessions too suggest that the yields could fall. The candle sessions is a reversal indicator based on the Japanese counting technique from 1 to 13. Potential reversals are expected at counts of 8, 10 or 13.
The 10-year yield indicated a possible turnaround on Nov. 16 when the candle session reached the count of 13. Post the Moody’s upgrade, yields tumbled and recorded candle session 1 on Nov. 17.
The chart analysis has been done by Akshay Chinchalkar of Bloomberg LP.
Watch this interview with R Sivakumar of Axis Mutual Fund on the way forward for the bond market.