Market Hangover (Part 1)

Market yesterday felt like a hangover from a wild party. We were there, we had fun, paid the bills and when we saw the bank statement, just couldn’t believe it. The rally has been immense on the back of the anticipated Jan 2022 bond maturity and coupons but felt overdone and we saw some reversal. But as I have always stated in this market, there is more money than investment opportunities, hence we might see some 20-50bps volatility, but we are not going anywhere. Most of the selling seems to be market-driven with clients on the sideline cherry-picking good bonds into the panic.

With little to no CRR debit, the market is awash with liquidity but there seems to be a feeling the debit will be this week, a lack of which could potentially spur another leg of the rally.

The short end of the curve remains largely bid with the 26s experiencing some correction, albeit conservatively. Most of the selling seems to be on the long end of the curve, 42s-50s. The belly of the curve 34s-37s still holding in well with relative value making it remain attractive and a seemingly large buyer.

Today, we expect the buying trend to remain the same although I do not think we will see as many buyers of the long end as we saw yesterday. The real buyers seem to want a better compensation for the duration difference between the 37s and the 49s with the 42s not seemingly very attractive due to its availability at auction.

Fundamentals of bond issuance, fuel subsidy, supplementary budgets and how far yields can move would be interesting topics to discuss, but as I said, we are still drinking expresso for our hangover.

Good luck trading today.

Krosk Partners

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