Indian benchmark bond (7.59% GOI 2026)
The benchmark bond has risen steadily over the past few months and touched a peak of 7.02 yield level. From the peak of 103.85 in price terms, now it has retreated to 103.50 (7.07%). The current rise in price was accompanied by the fall in RSI (Relative strength index).
This has resulted in a bearish divergence pattern emerging between the price and RSI. The red line represents the divergence between the price and RSI. A price confirmation is required to act on the signal. The break and close of the lower bounds of the trend channel can be used as entry point to short the bond. The price is currently trading in a trend channel with a width of 90 paise and the break of the same should take the price by a similar amount.
A break down from 103.40 (7.0825 %) should take the market to 102.50 (7.2141%), which coincides with the 38.2% retracement of the market move from 100.28 (7.5450% last seen during Brexit scare) to 103.85 (7.02%). It would be prudent to book partial profits and exit long positions which are in the money. Further direction of the market can be decided based on the then prevailing price action.
Sell below 103.40 (7.0825)
Target 102.50 (7.2141)
Stop loss 103.55 (7.0608)
Risk reward ratio of 6 makes it a compelling trade at current market conditions.