Comments
The National Stock Exchange is working towards launch of new interest rate futures (IRF) contracts based on the new 10-year 2025 Government bond.
The Government on Friday introduced a new 10-year bond in the market that will mature in 2025.
As much as Rs 9,000 crore was mopped up in the first auction conducted on Friday for this 10-year paper, which has replaced the current security, maturing in 2014, as the new benchmark.
With the new 10-year 2025 bond having emerged as the new benchmark, NSE will soon come out with IRF contracts based on the new bond.
Talks are on with the Fixed Income Money Market and Derivatives Association of India (FIMMDA) for this purpose, sources close to the developments said.
In India, exchange traded IRFs are standardised contracts based on an underlying Government of India bonds.
An IRF contract is an agreement to buy or sell a debt instrument at a specified future date at a price that is fixed today.
NBF II SHINES
Meanwhile, NSE Bond Futures II (NBF II)--which was launched in January 2014--has seen a sharp rise in average daily turnover, continuing its good run and signalling its success as a risk management tool.
From an average daily turnover of Rs 1,000 crore in January 2014, there has been sharp spike in average daily turnover to near Rs 2,500 crore in April 2015. In fact, the average daily turnover till May 21( this month ) surpassed the Rs 2,500 crore mark, data available with NSE showed.
NSE currently enjoys market share of close to 90 percent in the exchange traded IRF market.
So what is contributing to the buoyancy in trade volumes in IRFs in NSE in recent weeks? This could be explained by the fact that a big event --RBI monetary policy review --is round the corner on June 2.
"It is common to see build up in traded volumes ahead of monetary policy review event. The expectations go up. This time there is also the aspect of new 10-year Government bond coming to the market. Both these factors are playing out", sources said.
IRFs have turned popular in Indian stock exchanges in recent months due to the possibility of increased interest rate volatility in the coming days.
Besides the likely policy rate cut by the RBI (as part of its continuing monetary easing cycle), the likely interest rate hike by the US Federal Reserve is also adding to the volatility.
Bond prices are inversely correlated to interest rates. IRFs are highly correlated with bond prices.
This provides for hedging opportunities, say market watchers.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.