Bond yield helped us predict cut in repo rate by 25 bps!

Bond yield helped us predict cut in repo rate by 25 bps!

By Waves Strategy Advisors (www.wavesstrategy.com). For more information write to helpdesk@wavesstrategy.com or call on +91 9920422202

The following excerpt was published today morning in “The Financial Waves research report”before equity markets opened. We have been using 12 month bond yield to forecast RBI stand on repo rate and have been perfectly right even this time in expecting 25 bps cut!

Bottom Line: Bond yield indicating a plausible rate cut by 25 bps! We have been successfully using Bond yield chart to predict RBI action on repo rate. We have been successful in expecting no rate cuts over past few quarters.

12M Government Bond Yield:

Above is the chart of 12 Month Government Bond yield.  We use this chart to predict the next action of RBI monetary policy on repo rate. Generally, Bond markets act as a leading indicator for the government action. Last policy was announced on 18^th December 2012 in which we have been right on no rate cut in repo rate.

Looking at chart we find that since June 2012 to December 2012 yield was moving between 7.90 and 8.10 levels. For the first time since June 2012 yield has moved below 7.90 levels and closed at 7.78 yesterday. This indicates there can be a probable rate cut by 25 bps. However, if Bond yield would have been near 7.70 levels this would have increased our conviction towards rate cut.

In short, Bond yields are indicating repo rate cut by 25 bps – from 8 to 7.75. It will be important to observe how equity markets react to this widely expected move by RBI.

To know what lies ahead for Indian equity markets and the crucial levels that will determine the trend ahead for Nifty write to us at helpdesk@wavesstrategy.com or call on +91 9920422202. For more information visit www.wavesstrategy.com