Blogs

The Sovereign Gold Bond Scheme 2021-22 - Series VIII will be open for subscription for the period from November 29, 2021 to December 03, 2021. The nominal value of the bond based on the simple average closing price for gold of 999 purity of the last three business days of the week preceding the subscription period stood at Rs 4,791 per gram of gold.

Bond laddering is an investment strategy that involves buying bonds with different maturity dates so that the investor can respond relatively quickly to changes in interest rates.

Supply & demand mismatch opened on to rise in commodity prices which is causing end products to be expensive than earlier. Global central banks have tools to battle economic crisis by easing the interest rates to spurt the growth, but can these tools fill in the supply gaps to meet the demand?

(De) fractionalisation (we can use both terms) or tokenisation is a term that is used to break an asset into fractional lots. The reason an asset is broken down into fractional lots is the value of the asset. For example, if a stock is trading at USD 2000 per share, not many investors would be able to buy even 1 share. However, if USD 2000 per share is broken down into USD 100 per unit of the share, then many more investors can invest in the share.

The 1st principle of comparison is 2 bonds should be like to like as in they should carry similar risk profile. Comparing a corporate bond to a G-sec is not a right comparison as g-sec is risk-free in terms of default risk while corporate bonds carry default risk.

Corporate bonds while similar to corporate FDs as they pay regular interest and give principal back on maturity, are less risky than corporate FDs. The reason is that the bonds are widely held, have very high market scrutiny and also have regulatory oversight. A company issuing bonds will have to constantly update information to both market and rating agencies and the market determines the risk of the bond.

The yield and coupon rate differ due to the price at which the bond trades in the market. As bonds are traded securities, the price of the bonds changes due to demand and supply and this price reflects the yield of the bond.

MIP or monthly income plans are designed to give you monthly cash flows to meet your expenses. MIPs can be bought off the shelf from mutual funds and insurance companies but they also come with high expenses if guaranteed and this drops returns drastically while mutual fund MIPs can face volatility on market movements.

When a bond is first issued, it has a face value, which can be Rs 100, Rs 1000, and so on. This face value determines the price at which a bond trades in the market. For example, Gsecs trade at Rs100 face value and below or above Rs 100 when interest rates change.

Monthly income generation through investments is highly tricky. MIPs are expensive if guaranteed and are not enough to meet expenses and if there are market components like equity for higher returns, cash flows can be volatile.

RBI Floating Rate Saving Bond can be invested by individuals (including Joint Holdings) and Hindu Undivided Families. NRIs cannot make investments in these Bonds.

The need for generating monthly income from savings is high. Senior citizens, retirees require monthly income to meet their lifestyle requirements as well as for meeting various other expenses including healthcare, house maintenance etc. Others would like a monthly income to fund hobbies and other non essential expenses

Increasing retail participation in the Indian bond markets – both corporate bonds and government securities (Gsecs) - can bring in a new set of investment opportunities for the small investors. RBI’s initiative to retail Gsecs can expand the options for safe and secure investments for the small investor, while interest in corporate bonds would multiply by streamlining the digital listing and settlements processes. Information led low cost, efficient and real-time digital platforms can enable retail investors to invest in these bonds with transparent pricing and seamless settlements. This note identifies some enablers for small investors to benefit from these new asset investment opportunities through digital platforms.

Tata Cleantech ltd, a clean energy lender issued floaters or floating rate bonds (FRB) last week. The 3-year maturity bond has a coupon rate that is linked to the 3-month treasury billl issued by the government of India. The coupon or interest payable on these bonds are set at 160bps or 1.6% over the 3-month bill yield and is reset every year. For the 1st year, the coupon is fixed at 5%.

The disruptive weather patterns across the globe has thrown into focus Climate Change and the urgent need to act by all stakeholders. Heat wave in North America and Canada, floods in Europe and China and uneven rainfall in India are all are attributed to the environmental damage due to unsustainable levels of CO2 released into the atmosphere.

Royal Sundaram General Insurance Subordinate bond is available for Investment at attractive levels. The issuer is rated AA+ stable by CRISIL and it's 10.5% March 2027 maturity subordinate bond is offered at a yield of 9.86%.

RBI is now making it as easy as ordering food from Zomato to invest in the government of India bonds also known as g-secs. G-secs are the safest investment in the country as you are owning a bond that is issued by the government of India.

The market indicator of rising or falling interest rates is the yield or price movement on government bonds.If government bond yields rise or prices fall, then its is said that interest rates are rising and if government bond yields fall or if prices rise, interest rates are falling.

Shriram Transport Finance Co Ltd (STFL) bonds were shunned by institutional investors in the year 2020 as covid hit the highly leveraged company with high NPAs. Bond yields shot up despite the fact that rating agencies maintained their rating of high safety.

Synopsis: Latest fiscal stimulus will improve the creditworthiness of corporates that are struggling with covid lockdowns but will also pull up inflation. Corporate bonds trading at higher yields can be attractive while gsecs, psu bonds, and AAA corporate bonds may see a rise in yields on inflation.

A zero coupon bond is a bond that does not pay periodic interest and the interest rate is factored into the price of the bond. The bond trades at price that is lower than its face value.

STRIPS stands for Separate Trading of Registered Interest and Principal Securities. “STRIPS” are distinct, separate securities that are created from the cash flows of a Government security and shall consist of – (i) Coupon STRIPS, where the single cash flow of the STRIPS represents a coupon flow of the original security (ii) Principal STRIPS, where the single cash flow of the STRIPS represents the principal cash flow of the original security.

A bond that is having a YTM of 10% with a 4-year maturity will give the 10% return if the investor holds the bond to maturity. Here, the bond return is not past return, it is the actual return on the bond based on cash flows from coupon and maturity. Unless the issuer of the bond defaults on interest payments or principal, the 10% return is certain.

Covered bonds are asset backed debt instruments secured by pool of loan assets to protect investors in case of insolvency of the bond issuers. Credit rating of these bonds are generally few notches above the rating of issuer.

Inflation in the US is spiking with CPI for May 2021 at 5%, the highest level since 2008 while core CPI level at 3.8% was the highest seen in 3 decades. The jump in inflation is largely due to the demand in the economy from covid relief measures, sharp rise in commodity prices and the huge money printing by the Fed.

High risk bonds are those bonds that have higher chance of default. The issuer's ability to pay interest on the bonds and pay back the principle on maturity is low due to weak financial health.

Indian equities have been resilient despite covid lockdowns and broad market indices have risen from lows though not yet reaching peaks seen this year. However, specific stocks have seen very strong rallies and many of them have been from companies that have very high levels of debt.

The common phrase I hear on bonds is that they are difficult to understand unlike equities. The truth is the opposite, equities are much more complex than bonds, as there is no right or wrong way to value equities and no one can be absolutely sure of the right price of a stock. Bonds on the other hand are straightforward, you invest in a bond and over the tenure of the bond you get periodic cash flows that are normally constant and at the end of the tenure of the bond you get back your capital. The return on the bond is the interest rate offered on the bond at the time of investment, say 6% or 7% or 8%. Equity returns are volatile and you can either lose money or make good returns.

Fixed income offers steady returns for risk averse investors and financial advisors allocate assets to fixed income for both portfolio balancing and regular cash flows. Fixed income encompasses bank and corporate deposits, government small savings schemes, mutual funds and insurance products, bonds and other structured products. Investors are exposed to bonds indirectly as mutual funds and insurance companies invest in bonds. Investors can also invest directly in bonds as part of fixed income allocation.

RIAs (Registered Investment Advisors) play an important role for investors to achieve their financial goals. RIAs help clients in their asset allocation to optimize the return on savings given a level of risk-taking ability.

InvITs are trusts that invest in a pool of infrastructure assets such as roads or power grids/ transmissions. The assets must generate income from toll collections or from electricity distributors/consumers as these collections are distributed as dividends to investors. InvITs are issued in the form of units, which can be bought and sold in NSE/BSE.

Hope of an economic recovery in the financial year 2022 is faltering with many states going into lockdown on the resurgence of corona virus in India. The violent spread of the virus has taken the markets by surprise and there is growing pessimism on the business front due to lockdowns and due to the fact that governments, both centre and state, do not have funds to spend for virus relief. The only hope now seems to be the pace of vaccinations and this could take months to cover a large part of the population of India.

Bonds literally come in various shapes and sizes and choosing the right bond that suits your financial objectives and risk profile is important. Bonds are not one size fits all type of investment, they have to fit the investor and this provides the right cash flows with peace of mind for investors

Bonds carry risk of default, illiquidity and fall in prices. Bond investments are also on the larger side unlike equities where smaller amounts can be invested. For example, you can buy 1 equity share for and low as Rs 100 while in bonds, minimum amount can even be Rs 1 million. Holding bonds of the same issuer or issuers of one particular sector exposes you to higher risk of capital from either default or illiquidity or fall in prices. Hence diversifying bond investments gains importance.

A bond when it is issued, carries with it terms and conditions of the issue that specifies coupon, maturity, interest payment dates, listing, security among other things. Even more important, it lists out the rights of the issuer and the rights of the bond holder. For example, if there is call option, the issuer has the right to exercise the option while if there is put option, the bond holder has the right to exercise the option. The rights of the issuer and the bond holders listed out in the bond issue term sheet can also called bond Covenants.

Bonds are fixed income securities that give steady returns for a fixed period. Given that at the time of investments you lock in to the returns if you plan to hold the bond to maturity, it is extremely important to be sure that you are investing in the bond at the right price or yield. Bonds issued in the primary market comes with a fixed coupon, which is also the yield on the bond. Bonds sold in the secondary market also carries a fixed coupon but yields can differ from the coupon rate as prices change due to changes in the interest rates.

SEBI has told MFs to restrict investments in perpetual bonds and also change the valuation norms of perpetual bonds, which would make the bonds valued to maturity, which is 100 years. The policy regulation on perpetual bonds is clearly designed to protect investors from both write offs, as in the case of Yes Bank and from issuers not exercising the call option on the bonds, which would then make the bond maturity 100 years.

SEBI circular on perps has created a tremor in bond markets. Investors are at the receiving end of the fact that Finmin issued a directive to SEBI. Check out INRBonds risk rating on perpetual bonds.

In the last 2 months, corporate bond yields have increased, largely due to worries about inflation and government borrowing. Bond yields have increased by around 60bps to 80bps, which means that investors will get higher returns on bond investments at present than if they had invested 2 months back. Bonds of various maturities and various credit qualities are giving returns of anywhere between 6% to 9% and higher. How do you choose between various bonds available in the market for investments?

Gold prices have come off over the last 6 months on factors like higher equity prices and rising government bond yields. Gold is seen as a safe-haven asset when there are market crises and with vaccinations for covid easing economic stress, gold is losing its glitter with investors. The table below shows returns on gold, gold ETF, and SGB over the last 6 months.

Petrol prices have risen to record high levels of Rs 100 per litre, which directly affects your pockets. The reason for high petrol prices is the lack of funds for both the state and central government, as revenues have been hit hard by the covid pandemic disruption to the economy. Apart from pinching your pocket, cost of all other goods and services also rise due to rising transportation costs, which further hurts your finances. On the investment side, high petrol prices has an effect on your fixed income portfolio, as returns on your investment fall due to both higher inflation and falling bond prices.

Fixed income plays an important part of asset allocation, as it provides certainty of cash flows and adds stability to the overall portfolio. Within the fixed income spectrum, there are many options such as bank and company deposits, small savings schemes such as PPF, Post Office and NSC, Insurance products, NPS, mutual funds, bonds and other products including managed funds.

RBI is enabling direct access to retail investors in Gsec market. Gsecs are bonds issued by the Government of India and are the safest investments in terms of capital protection, if held to maturity.

The Union Budget 2021-22 saw the government peg fiscal deficit, which is the difference between revenue and expenditure of the government, at 9.8% of GDP for the fiscal year 2020-21 and 6.8% of GDP for fiscal 2021-22, which are very high numbers and not seen at least in the last 15 to 20 years. The government borrows from the bond market by issuing bonds to finance the deficit and high borrowing and less demand for bonds are leading to rising yields on bonds in the market.

Bond are seen as boring, safe and steady and an asset that provides stable cash flows. Bonds are not seen as high return investments. Given that bonds are viewed as safe and steady, financial advisors normally use bonds to reduce risk on investors portfolio. Bonds are definitely not used for generating higher portfolio returns.

The union budget for fiscal 2021-22 will be presented to the parliament on the 1st of February 2021. The government will show a fiscal deficit of around 7% of GDP for the last fiscal year, which is double of what was budgeted. It is going to be a challenge for the government to lower deficit or spending for this year, as growth momentum is key for the covid hit economy. High fiscal deficit is inflationary in nature as it promotes consumption without any adequate increase in supply.

Treasury secretary, Janet Yellen, said 'act big' on Covid-19 relief package, stating that the economic benefits far outweigh the leveraged Fed's balance sheet risks.

PFC bond IPO PFC (Power Finance Corporation), a PSU, is opening a bond IPO on 15th January. Click here to read our credit note on PFC. The issue is open to institutional and non institutional investors including individuals. The bond issue has various options of maturity from 3 years to 15 years and has fixed and floating rate component.

The cale year 2021 is expected to be highly volatile for fixed income markets and investors will have to position their investments to withstand volatility. Covid-19 pandemic that drove monetary and fiscal policies in 2020 will continue to play a large part in shaping fixed income markets in 2021. Vaccines, while providing relief in terms of health, will not provide an antidote to the economies hit by Covid-19 and this will further the presence of central banks and governments in the bond markets. Bond yields are at all-time lows and in the developed world, above USD 16 trillion of bonds are trading in negative territory while extreme short end US treasuries are hovering at close to 0%. Credit spreads across the globe have fallen sharply on Fed and other central bank support to credit markets. Investors are desperate for higher-yielding assets and that is driving flows into emerging market and riskier bonds. Desperation makes investors forget risk and higher risk-taking in fixed income

At the time of investing in a bond, hold to maturity investors expect steady cash flows from coupon payments and receiving the principal back on the maturity of the bond. Any factor whether internal or external that has the potential to disrupt cash flows and also place the principal in danger is a threat to your bond investment. Apart from the inherent threat to cash flows and principal, factors that can cause a steep fall in the value of a bond are also threat to your bond investment, as it would bring down the overall value of your savings and also generate steep losses in case you sell the bond for any immediate liquidity requirements.

When you invest in a bond, you have a cash outflow and over the years, you get regular coupon inflows and at the time of maturity, you get your principal back. Basically its like a loan that you take for your mortgage, where you receive the value of the property cost from the bank and then you keep paying EMIs until the maturity period of the loan

In last week's Search for Yields newsletter, the free weekly newsletter from INRBonds to help bond advisors and investors alike in investments in bonds and other fixed-income investments, we introduced 3 questions to ask to avoid bond mishaps. The questions were : Will interest rates move up or down in the future? What will guarantee my principal repayment? Can I sell the bond if I see a threat to my investment? We will dwell upon the first question, will interest rates move up or down in the future.

In the last 2 years, investors (many of them individuals) have lost money by investing in bonds that have defaulted and failed to repay the principal amount invested. Bonds issued by IL&FS. DHFL, Reliance Capital, Yes Bank and other issuers have defaulted. Investors invested in fixed income mutual fund schemes of Franklin Templeton, BOI AXA have lost significant money as these schemes had invested in bonds that defaulted. Investors in fixed income products look for steady and safe returns and when they lose money in their fixed income investments, their savings take a beating. This brings us to the question, why investors took extra risks in investing in bonds and fixed income schemes that defaulted or lost them significant money.

Vedanta is issuing high yield bonds to repay debt maturing in 2021, indicating that the company does not have funds generated internally to service its short-term debt. This is very negative for the credit as if the company is not able to start generating funds to service debt, the high-interest cost for such new debt can prove to be a huge credit negative factor.

RBI in its policy review statement on the 4th of December 2020 said that inflation pressures are rising and inflation is likely to be higher at around 5% levels at least until September 2021. CPI inflation is running at 7.6% at present and various factors including higher spending by the government and lack of infrastructure creation has created a demand supply mismatch with demand outstripping supply.

Equity valuations have risen sharply on liquidity flows and this can cause concern for investors if earnings growth fails to meet expectations. At such high valuations, it can make sense to book profits and invest in corporate bonds?

GST that led to a growth slowdown on implementation in July 2017 has helped the economy growth at a fast pace, albeit with a base effect.

The General Index for the month of October 2016 stands at 178.00, which is 1.9 percent lower as compared to the level in the month of October 2015.

RBI announced a Long Term USD/INR Buy – Sell swap auction as a liquidity management tool.

CPI inflation for September 2019 was at 3.99%. Index rose 0.55% against August 2019.

India’s external debt as of end-June 2019 was at USD 557.4 billion, an 8.6% rise from USD 513.1 billion seen in end of June 2018.

In FY20 the Government of India conducted the conversion/switch of its securities through auction operations of Rs 2.249 trillion.

India’s GDP growth for the 2nd quarter of fiscal 2019-20 came in at 4.5% against the previous year’s first quarter growth of 7.0%.

Demonetisation opponents and conspiracy theorists are trying to imply that a surge in bank deposits in the August to September 2016 period indicates that the move was leaked to a few who took advantage of the information to convert black money to white by depositing the money in banks.

The Union Budget 2017-18 presented by the FM to the parliament today on the 1st of February 2017 is a pragmatic budget though the question of how the government will achieve lower fiscal deficit target remains.

RBI will keep the Repo Rate status quo in its bi monthly policy review on the 6th and 7th of June.

The year 2017 will continue to favour the INR that is up by 6.01% against the USD in 2017 so far.

India’s benchmark 10-year G-sec, the 6.79% 2027 G-sec, rose to 4 months highs of 6.67% (Chart 1) as the market is concerned about Government fiscal stimulus plan, Fed rate hikes and balance sheet unwinding and CPI Inflation that could derail rate cuts in RBI October 2017 policy review.

Government is expected to show a 14% rise in tax revenues going by its target of a tax to GDP ratio of 11.6% for fiscal 2018-19.

RBI against all expectations kept policy rates unchanged in its two day policy meet that ended today, the 7th of December 2016.

50bps rate cut, gsec yields will fall and then rise, 25bps rate cut, gsec yields will rise then fall.

The Incremental CRR announcement will add volatility to bond yields. However, yields will fall after rising initially as CRR is a temporary move.

RBI is paying the price of demonetization through lower surplus due to cost of sterilizing liquidity.

Bond yields of Portugal, Italy, Ireland and Spain have come off sharply from levels seen in January 2014.

The bond market is not expecting any repo rate actions by the RBI on the 1st of April 2014. Rate actions at this juncture is unwarranted is the belief in the market.

RBI’s third quarter review of the annual 2013-14 monetary policy scheduled for the 28th of January 2014 will not see any changes to key policy rates of CRR and Repo.

The US Federal Reserve (Fed) drove the benchmark US equity index, the S&P 500 index to record high close on the 18th of September 2013.

Markets are panicking. The Food Security Bill and the Syria issue have taken the Indian Rupee (INR) to all time lows of Rs 68.75 to the US Dollar.

RBI has announced weekly auctions of Cash Management Bills (CMBs) for Rs 22,000 crores. The auction will be held every Monday starting 12th August 2013

Equity markets will stabilize at higher levels and take direction from earnings outlook, economy and global issues.

When a company borrowers, it has to generate enough revenues to service the debt. Even if the company is not able to generate enough revenues, infusion of funds by promoters is equivalent to cash flows for servicing the debt. Bond investors always have to ask themselves if the company can generate sustainable cash flows to service debt or if the promoters are strong enough to capitalize the company. In such cases, if the answer is positive, investing in higher-yielding unsecured or subordinate bonds is more profitable.

Lakshmi Vilas Bank (LVB), an old private sector bank, was deemed to fail by the RBI and a white knight in the form of DBS has agreed to take over the bank. LVB is the second bank to fail after Yes bank.

The government passed an ordinance today on demonetisation of Rs 500 and Rs 1000 notes and effectively removed the liability of the government and RBI on the notes after 31st of March 2017.

A few months back IL&FS was rated AAA (highest rating) and in August its rating was downgraded to AA+ and now its rating is downgraded to BB (junk).

IL&FS downgrade will immediately impact funds that hold the bonds as they have to mark it down to default, which means a steady write off of the value of the bonds.

The concept of risk appetite is very much relevant for financial advisors when they advise their clients on investments. Typically, investments are structured to meet clients's financial goals such as buying a house, children education, retirement etc. A client's risk appetite that is gauged through a risk metric form or interview will determine the actual investments for the client.

Think of liquidity when you are looking to sell your old car and buy a new one. If your old car is a Maruti, you will be able to sell the car quickly and get a good market price, as Maruti cars are highly “liquid” in the second-hand market. Cars of other makes are not as easy to sell as Maruti cars and they are termed as less liquid.

The bonds issued by Shriram Transport Finance Limited (STFL) offer very high yields in the bond market with yields of over 10% and going up to even 13%. The yields are very attractive given that the bonds are rated AA+, which is just one rung below highest safety rating of AAA. In fact, at such yields, the bonds are being treated like BBB bonds, which is just one rung above junk bond yields.

What bonds do I recommend to clients? I am asked one question most frequently by bond advisors in all my interactions with them, which is "What bonds do I recommend to clients?". Normally I base my answers on the current state of bond markets and the future outlook for interest rates and credit spreads. Now, looking back, this kind of answer would resonate well with a bond trader or bond fund manager and may not be really understood by clients of bond advisors.

"Junk" in bond markets is a bond that is offering very high interest rates. For example, if you are earning just 3% to 4% on fixed deposits, junk bonds will offer rates of well over 10% and can go all the way up to even levels of over 20% to 25% in a few cases.

MLDs are seeing strong traction as an investment product but the risk they carry may not be commensurate with the pay-off

The COVID pandemic has given central banks a license to print unlimited amounts of money and governments to borrow unlimited amounts of debt. The license has its foundations in the fact that as GDP contracts, the fall in absolute terms has to be replaced by artificial money and debt to bring back demand in the economy. Simply put, if GDP was USD 100 and falls to USD 80 due to fall in output on the pandemic, central banks and governments have to bring it back to USD 100 and then allow GDP to grow from wide economic benefits.

Fixed Income investors are struggling with returns on Fixed Deposits plunging to 1% to 2% post-tax while higher-yielding debt is turning risky given defaults and lockdown. How does one achieve higher post-tax returns, without taking credit risk and liquidity risk?

The single most common complaint amongst investors is the low single-digit returns on Bank Fixed Deposits. Banks are offering almost nothing on FDs, as they are flushed with funds provided by RBI and the cost of funds is just 4%. COVID pandemic has made RBI drop interest rates to record lows in 2020. With inflation at over 6% as per the latest inflation numbers from the government, savers are extremely worried, as their savings get eaten upon inflation.

RBI balance sheet size increased by 30.02% in 2019-20 .

India’s current account balance (CAB) recorded a marginal surplus of USD 0.6 billion (0.1% of GDP) in Q4 of 2019-20 as against a deficit of USD 4.6 billion (0.7% of GDP) in Q4 of 2018-19 and USD 2.6 billion (0.4% of GDP) in the preceding quarter, i.e., Q3 of 2019-20.

India’s external debt as of end-March 2020 was at USD 558.5 billion, an 2.8% rise from USD 543.1 billion seen in the end of March 2019.

The Fed is unleashing its powers on the US corporate bond market and this will benefit Indian issuers in the global markets as liquidity drives search for yields.

Markets are normally way ahead of rating agencies and the INR has already sharply depreciated by 8% in a year against the USD at 75.6 levels but is higher from record lows of Rs 77.

AT1 bond yields have exhibited a correlation with equity valuations with spreads at lower levels on higher bank valuations in the market and spreads rising on fall in valuations (in terms of price to book). Table 1 shows the correlations.

The federal reserve is using its full range of tools to support the US economy during the ongoing public health crisis caused by Covid-19 and steep fall in oil prices which are currently weighing heavily on the US economic activity, employment, and inflation growth. In the recent policy meeting held on 29th April 2020, FOMC decided to maintain the target range for federal funds rate at 0% to 0.25%.

Fed is showcasing its full powers, using its money printing machine as the wand in the face of an economic disaster due to the corona virus impact.

investors can take advantage of short term bottom in markets if they are able to spot the bottom but long term, the outlook is very hazy.

Now this is the most chilling factor, a USD 7 trillion of money pumping will only help stabilise a plunging economy, but what about future growth? Will consumer behaviour get back to normal and will investments take place? Can governments afford more stimulus for growth with huge debt overhang.

The Fed announced on Monday the 23rd of March 2020 for the first time into corporate bonds, purchasing the investment-grade assets in primary and secondary markets through exchange-traded funds.

India’s current account deficit (CAD) narrowed sharply to US$ 1.4 billion (0.2% of GDP) in Q3 of 2019-20 from US$ 17.7 billion (2.7% of GDP) in Q3 of 2018-19 and US$ 6.5 billion (0.9% of GDP) in the preceding quarter, i.e., Q2 of 2019-20.

Too much use of antibiotics makes the body resistant to fight viruses and also weakens the body considerably leading to more and more infections.

ATI Bonds (Additional Tier 1) have proved to be an equity risk as it absorbs all losses of the issuer, as seen by treatment of Yes Bank AT1 Bonds.

Mutual Funds and Insurance Companies put together have lost close to Rs 90 billion on the back of RBI writing off the AT1 bonds (perpetual bonds) of Yes Bank under the reconstruction scheme.

The Fed announced on Monday the 23rd of March 2020 for the first time into corporate bonds, purchasing the investment-grade assets in primary and secondary markets through exchange-traded funds.

US OIL Production (Million barrels)

India’s GDP growth for the 2nd quarter of fiscal 2019-20 came in at 4.5% against the previous year’s first quarter growth of 7.0%.

The Indian economy grew by 4.2% in FY20 (fiscal year that ended in March-2020).

The Fed is looking to add USD 400 billion into money markets to ease a banking system liquidity crunch.

Fed rate cut with a guidance of data dependent policy moves will remove some nervousness in markets on worries of recession and disinflation.

Fed is buying US treasury bills to shore up reserves that had fallen due to its balance sheet normalisation.

The creation of a few big PSU banks will help banks stay competitive through sheer size and reach and also enable the government to divest stake in such banks to lower its shareholding or even exit them at some point of time.

Finance Minister today has announced slew of measures to revive the Indian economy.

ECB stimulus is positive for INR Bonds as bond yields are at low levels globally and many of the European bond yields are trading in negative territory while yields in emerging countries like India are still at higher levels.

India’s GDP growth for the 1st quarter of fiscal 2019-20 came in at 5.0% against the previous year’s first quarter growth of 8.0%.

RBI balance sheet size increased by 13.41% in 2018-19 on the back of increase in forex assets and G-secs which increased by 5.7% year on year to Rs 27852 billion and by 57.18% year on year to Rs 9898 billion respectively.Currency in circulation rose 26.92% to Rs 21687 billion in 2018-19.

Yes Bank Perpetual Bond downgrade to BBB+ with negative outlook, which is just at investment grade.

India’s external debt as of end-June 2019 was at USD 557.4 billion, an 8.6% rise from USD 513.1 billion seen in end of June 2018.

Perpetual bonds are trading at anywhere between 180 bps to 400 bps spreads depending on the bank and rating.

Equity markets will stabilize at higher levels and take direction from earnings outlook, economy and global issues.

CPI inflation for September 2019 was at 3.99%. Index rose 0.55% against August 2019.In September 2018,CPI inflation was at 3.70% while for August 2019 it was at 3.21%.

FIIs/FPIs have bought Indian equity shares worth Rs. 211 billion in April 2019 and sold shares worth Rs. 48 billion in May 2019 (till 17th May 2019).

Fed kept Trump rhetoric on rate cuts away from its policy decisions and guided for status quo on rates going forward.

RBI said in order to meet durable liquidity need of the system, it has decided to inject Rupee liquidity for a longer duration through long-term foreign exchange Buy/Sell swap.

CAD for the period 1QFY20 was at 2% of GDP against 2.3% of GDP for the same period in the previous year.

RBI injected close to Rs 345.61 billion liquidity through its USD/INR swap.

RBI announced a Long Term USD/INR Buy – Sell swap auction as a liquidity management tool. This is the first time RBI has explicitly stated that it will use fx operations for liquidity management.

Where does a Mutual Fund Fixed Income Scheme fit into a Fixed Income Portfolio? At the accrual level, Liquid Funds, Ultra Short Funds and FMP’s can replace Fixed Deposits as they offer both liquidity on call benefits, tax benefits and at times higher returns.

Aye Finance (P) Ltd (AFL) is a Delhi based RBI registered non-deposit accepting, Non Banking Finance Company (NBFC). The company is operating in lending to micro-enterprises in rural and semi-urban areas.

Rising US junk bond yields are placing pressures on high yield market globally with Eurozone junk bond yields too rising sharply.

NBFC CP and Bond spreads have risen sharply since the IL&FS default and markets are still risk averse on the sector.

Low duration funds were hit sharply by rise in yields at the short end of the cure.

The Fed removed the word accommodative from its policy statement while hiking rates in the FOMC Meet that ended on 26th September 2018.

GST that led to a growth slowdown on implementation in July 2017 has helped the economy growth at a fast pace, albeit with a base effect. GST is a key indirect tax reform and the government has tweaked rates over the last one year in response to industry dynamics.

GST that led to a growth slowdown on implementation in July 2017 has helped the economy growth at a fast pace, albeit with a base effect.

RBI balance sheet size increased by 9.48% in FY 2018 on the back of increase in forex assets, which increased by 11.24% year on year to Rs 26350 billion.

The draw down of government surplus of over Rs 1.8 trillion in just a fortnight in April is unprecedented and could be the key factor in the shortage of cash in the country.

The bond market has been concerned about the MSP hike as it could add to inflation expectations, strain government finances and force RBI to raise rates.

China is placing structural reform on hold and shifting to policies intended to support growth, as it prepares to shield its economy from the effects of a potential trade war with the U.S, and the government’s efforts to deleverage the economy.

Mid & small cap stocks have seen sharp correction in prices since April 2018.

The Eurozone erupts once in a while, causing markets to turn volatile, talk of Euro collapse and generally filling in sound bytes for market commentators.

The Eurozone erupts once in a while, causing markets to turn volatile, talk of Euro collapse and generally filling in sound bytes for market commentators.

Jindal Steel & Power recently got its credit rating upgrade from major credit rating agencies Crisil, ICRA and Care.

For the period April-December 2017, CAD increased to 1.9 per cent of GDP from 0.7 per cent in the same period of 2016-17 on the back of a widening trade deficit.

Investors who have bought perpetual bonds of Banks that could recall the bonds due to their NPA issues can see either a positive or a negative impact, depending on the price at which they have bought the bonds.

Second advance estimates of GDP growth for fiscal 2017-18 shows that India’s real GDP is expected to grow at 6.6% against 7.1% in the previous year.

India 10-year G-sec bond yields rose to 2 years high at a level of 7.77%, while USD-INR breach the level of Rs 65 to the USD.

The government did a fine balancing act in its budget for 2018-19. Despite revision of fiscal deficit targets upwards, the borrowing numbers look benign and this will appease bond markets that have been hit hard by weak sentiments.

Banks are full up on SLR and with Recap Bonds, banks holding of bonds will rise further, eating into their net interest income.

In markets, there is a famous saying that If you invest in equities, you should keep an eye on the bond market. If you invest in real estate, you should keep an eye on the bond market.

In markets, there is a famous saying that If you invest in equities, you should keep an eye on the bond market.

The unprecedented 9 years of record low interest rates globally is coming to an end. The Fed has raised rates thrice by 25bps each in 2017 and is likely to raise rates by 75 bps in 2018 and 2019.

Bitcoin touched USD 15,000 today and price is sky rocketing. Its on everyone’s lips. Investors wonder whether to buy, regulators are issuing “at your own risk” warnings, bankers are hugely worried of its disruptive effects.

The biggest worry for global financial markets is China.

10 year benchmark gsec, the 6.79% 2027 gsec saw yields rise by 7 bps today and crossed 7% levels to trade at levels of 7.05%.

Initial market reaction to the Rs 2.11 trillion bank recapitalisation plan of the government is surge in PSU bank stocks leading the Sensex and Nifty to record highs, rise in gsec yields, fall in credit spreads of bank bonds and fall in INR.

India’s external debt to GDP ratio, debt coverage ratio and foreign exchange reserves to external debt ratio as of June 2017 were stable as compared to March 2017 ratios and showed improvement against June 2016 ratios. Stable external debt ratios is positive for capital flows and for INR.

India’s GDP growth for the 1st quarter of fiscal 2017-18 came in weak with a growth of 5.7% against 6.1% seen in the 4th quarter of fiscal 2016-17.

India’s benchmark 10-year G-sec, the 6.79% 2027 G-sec, rose to 4 months highs of 6.67% (Chart 1) as the market is concerned about Government fiscal stimulus plan, Fed rate hikes and balance sheet unwinding and CPI Inflation that could derail rate cuts in RBI October 2017 policy review.

Small cap and Mid-cap stocks have reached record highs due to strong liquidity flowing in the market & expectation of improvement in earnings especially after the implementation of GST.

In March 2017, we first put out a presentation on why the Sensex will touch 40k in 2019.

China bond connect program could create outflows from emerging markets or prevent fresh inflows of foreign investments to emerging markets, as FIIs ramp up exposure to China debt.

State Development Loans (SDL) are trading at spreads of around 70bps over the benchmark 10 year gsec.

RBI has revised rules for FPI (Foreign Portfolio Investor) investment in Government securities, giving preference to long term investor.

In the first half of 2017, prices for most industrial commodities strengthened while crude oil prices declined on uncertainty over commitment to the OPEC and non-OPEC cuts, larger-than-expected US crude oil inventories, robust recovery in U.S.

CPI inflation for May 2017 printed at a record low 2.18% against 2.99% seen in April.

Power Finance Corporation (PFC) bonds rated AAA by all rating agencies are widely held by institutions, corporates and individuals. Institutions such as Mutual Funds, Insurance Companies, Provident Funds and Trusts are large holders of PFC taxable bonds.

FII’s corporate debt exposure was at Rs 2023.30 billion as of 12th May 2017, the highest on record.

The spreads between the 10 year gsec and 10 year UST are at levels of around 460bps. Spreads peaked at 690 bps in May 2012. Will the spreads go down further or will it rise?

At this point of time, given that the Fed will wind down its balance sheet gradually, there will not be any impact on markets and your investments fundamentally but only through sentiments.

Political risk rather than economic risk has been a big worry for Eurozone as seen by rising spreads between bond yields of countries facing elections.

Mutual Funds’ exposure to Government Securities (G-sec) declined 21% to Rs 1273.01 billion, in the last three months after demonetisation, February 2017 data shows.

Political risk rather than economic risk is a big worry for Eurozone as seen by rising spreads between bond yields of countries facing elections.

Gross Central Government Tax Revenues to GDP Ratio has increased to 11.3% of GDP in fiscal 2016-17 from around 10% levels over the last three years.

Sensex & Nifty traded cautiously last week on the back of events such as Trump inauguration, Yellen speak and on forthcoming events such as Fed policy meet, Union Budget 2017-18 and RBI policy all of which are coming up on 1st of Feb and 8th of Feb respectively.

MCLR or Marginal Cost of Funds Lending Rate is good for borrowers as banks have to pass on lower cost of funds when interest rates fall in the economy to the borrower.

Demonetisation has given a new thrust to Transaction Banking in India.

The record close in global indices backed by improved economic data and rising corporate profits will help spur the Sensex & Nifty to rally into the budget for fiscal 2017-18 to be presented to the parliament on the 1st of February 2017.

India’s exports grew 5.71% in December 2016, the fourth straight month of positive growth.

RBI has an official inflation target of 4% +/- 2% set by the government and will primarily set its monetary policy to achieve its inflation target.

In consonance with the revival exhibited by exports in the last three months, exports continued to show a positive growth of 5.72 per cent in December 2016.

Government’s move to demonetise Rs 500 and Rs 1000 notes has resulted in a surge in liquidity with currency in circulation falling sharply and coming back into the banking system in the form of deposits.

Liquidity as measured by bids for repo, reverse repo, MSF and MSS bonds outstanding has surged over the last two weeks.

The year 2016 saw the least favoured currencies outperform.

The unprecedented record low interest rates globally will come to an end in 2017.

In November 2016, Commercial Papers (CP) 3 months, 6 months and 12 months maturity yields bottomed out at levels of 6.35%, 6.85% and 7.05% respectively as system liquidity surged on the back of demonetisation and hopes of rate cuts by the RBI in its December policy review

The fall in yields of government bonds and corporate bonds has led to a significant increase of 10.6% in assets under management of debt mutual funds in November 2016 to Rs 11.86 trillion.

The U.S. trade deficit widened for a second straight month in November by 6.10% to 45.2 USD Billion as imports rose to their highest level in more than a year on higher oil prices, suggesting that trade was a significant drag on economic growth in the fourth quarter.

CPI for December 2016 declined 0.23% on a month on month basis and rose 3.41% year on year, lowest level since November 2014.

Government’s move to demonetise Rs 500 and Rs 1000 notes has resulted in a surge in liquidity with currency in circulation falling sharply and coming back into the banking system in the form of deposits.

The General Index for the month of October 2016 stands at 178.00, which is 1.9 percent lower as compared to the level in the month of October 2015.

India’s GDP grew by 7.2% in the first half of fiscal year 2016-17 and demonetisation (Read our analysis on demonetisation) is expected to lower GDP growth in the second half of the year.

Central banks have taken the leverage from the government and the private sector globally.

The USD/INR forward premia has come off sharply in recent weeks.

The FOMC Minutes for November 2016 suggest that Fed officials are keen on raising rates at the earliest, prompting bond markets to price in a 93.5% probability of a hike in December.

Demonetisation opponents and conspiracy theorists are trying to imply that a surge in bank deposits in the August to September 2016 period indicates that the move was leaked to a few who took advantage of the information to convert black money to white by depositing the money in banks.

In the week ended 18th November, FIIs sold INRBONDS for USD 1.79 billion.

Demonetisation has caused the Liquidity math of RBI to go awry. RBI’s policy stance is to keep liquidity in a neutral territory.

As on 14th November 2016, 3 years AAA corporate bond spreads were at 72 bps, highest levels seen since January 2016.

Mr. Donald Trump was elected as 45th President of United States of America, winning 306 electoral votes, against Mrs. Clinton 232 electoral votes. After the announcement of the U.S. Presidential election results, global markets shattered during initial trades, Nikkei fell by 6%, Hangseng fell by 4%, Sensex fell by 4%, Kospi fell by 3.65%, IPC Mexico fell by 5%.

The yield on the benchmark ten year government bond, the 6.97% 2026 bond, fell 13bps post the government demonetising the Rs 500 and Rs 1000 notes.

In my Podcast last week on “Post Election Rally in Markets”, I had said that just like Brexit, a Trump victory could lead to markets rallying against popular perception.

Donald Trump is elected the President of America and market reaction is one of extreme risk aversion.

U.S. Treasury bonds sold off as investors bet on a Donald Trump administration boosting fiscal spending, President Trump has promised a big boost in spending on defense and infrastructure and also pledging to cut taxes steeply.

Cheap liquidity from ECB, BOJ, BOE has flooded markets and the impact of this cheap liquidity can be seen in bond yields of majority of countries that are trading at year lows

The recovery in financial markets last week following the Britain’s vote to leave the European Union was welcome relief to market participants.

What does negative interest rate mean? In a negative interest rate scenario, you are charged to keep money in a bank account.

The question to ask now is, will Leicester City win the Premier League this year too and will the Yen and the Euro continue to rise? The answer may not be an obvious Yes but it definitely is not an Obvious No either and that sets the trend for the markets in the coming months.

The Indian Bond markets have undergone a metamorphosis post the financial market reforms in 1990.

The INR at levels of Rs 68.64 to the USD is just 0.20% off all time lows of Rs 68.80 seen in August 2013.

Greece is in the news as the country is going in for general elections. If the ruling party does not get majority and if the anti austerity party wins, the country could default on debt and maybe even go out of the Euro.

The Euro rose by over 2.5% against the USD while equities fell and bond yields rose globally on markets disappointment on ECB policy.

In December 2017 FII limits in central government securities has increased by Rs 64 billion and by Rs 58 billion for State Development Loans (SDL).

The reaction of the Euro and Eurozone bond yields has been tepid to say the least on Grexit worries. Euro fell marginally and bond yields of Spain, Italy and Portugal rose after the referendum on Sunday the 5th of July but have then stabilized.

The Greek referendum on Sunday the 5th of July threw up a “No” vote against austerity measures imposed by the country’s creditors.

As on 1st July 2015, FII debt utilisation stood at 86% of total limits of USD 81 billion of which USD 51 billion is corporate bonds limit and USD 30 billion is government bonds limit.

India’s GDP at current prices is estimated to have grown by 12.3% for fiscal 2018-19 as per the first advance GDP report published by the CSO.

Bond yields of Portugal, Italy, Ireland and Spain have come off sharply from levels seen in January 2014 and are trading at record lows.

A bond bubble has formed across the developed world, especially in the Eurozone.

Bond yields of Portugal, Italy,Ireland and Spain have come off sharply from levels seen in January 2014.

Greece received four months extension to its bailout package by the Euro Area Finance Ministers and has effectively given relief to markets as it will be able to meet its February 2015 commitments to its debt holders.

The ten year US Treasury (UST) yield is down over 100bps from highs of 3% seen in December 2013 to levels of below 2% as of 16th October 2014.

The bond market can expect the RBI to maintain Repo Rate at 8% for the next one year or until CPI (Consumer Price Index) trends down to 6% from current levels of 7.80%.

The Indian Rupee (INR) is trading at eleven months highs of around Rs 58.75 to the USD while ten year benchmark government bond yields are trading at close to four months highs of 8.71% on the day of 2014 general elections results showing an overwhelming majority for the Modi led BJP.

RBI has adopted the Dr. Urjit Patel committee report on strengthening the monetary policy framework recommendation and is progressively moving away from the LAF (Liquidity Adjustment Facility) regime, which provided guaranteed access to funds at the overnight repo rate.

Bond markets are usually a good lead indicator for both equities and currencies.

The Chinese currency, Renminbi or Yuan (both denote the official currency of China) has fallen by close to 1.5% against the USD since beginning January 2014.

The fiscal profligacy of the UPA government is starting to hurt when it comes to repayment of borrowings.

FIIs have bought close to USD 3.5 billion of INR Bonds in the months of December 2013 and January 2014.

India’s fiscal deficit for FY14 likely to come in at 4.65% against expectations of 4.8% on the back of planned expenditure cuts.Cut of 20% in plan expenditure may take down fiscal deficit to 4.65% of GDP.

India’s foray into IIB (Inflation Indexed Bonds) has been disastrous. IIB were supposed to provide a hedge against inflation for investors but in fact it has wiped out capital for the early buyers of the bond.

The RBI is auctioning Cash Management Bills (CMB) to fund the government that finds itself in need of cash. CMBs are issued to fund short term needs of the government. T

RBI action on 15th July to curb INR volatility has whacked Treasury Bills (T-bills) yields out of shape. The 91 day and 364 T-bills are trading at 10.60% and 9.70% respectively.

On 23rd July 2013 RBI announced an auction of 28 days and 56 days Government of India Cash Management Bills to be held on the 25th July 2013.

Ten year US Treasury (UST) yields have surged by 50bps over the last one month and at yields of 2.22% are trading at highest levels seen since April 2012.

The Yin and Yang is a fundamental concept of Chinese medicine. The Yin and Yang philosophy has four main aspects a) They are opposites b) They are interdependent c) They keep changing and d) One can change into another at points of time.

Liquidity conditions for banks will improve on government spending, sustained positive portfolio flows and RBI liquidity infusion actions.

Banks such as UBS and Credit Susisse are charging institutional depositors to accept deposits in Swiss Francs (CHF).

The Renminbi (Chinese Yuan or CNY) hit a record against the US Dollar (USD) on the 26th of October 2012. The USD/CNY rate closed at CNY 1.2380 on Friday an all time high for the Yuan.

Credit spreads as defined by the difference between corporate bonds and government bonds with similar maturity have fallen sharply over the last four months.

The Euro has largely been instrumental in moving asset classes all over the place over the last one year.

The Euro has fallen to two year lows on economic woes in the Eurozone. The seventeen nation currency is trading at a two year low against the USD at Euro 1.245 levels, down over 14% over a one year period and down 6.6% end March 2012 to date.

The economy will adjust to the new Rupee levels over a period of time. The differentials with the US economy are wide enough for the Rupee to stem its seemingly free fall. India is growing at 7% while the US is growing at 2.5%. US Federal Reserve (Fed) rates are at close to zero percent while RBI’s repo rate is at 8%.

Silver has caught the fancy of investors over the last one year. Silver trading volumes in MCX (Multi Commodity Exchange) have surged with silver accounting for 38% of total traded volumes in April-December 2011 up from 23% seen in 2010-11.

Gold is losing its flight to safety value and at levels of USD 1700/oz is trading near its all time peak of USD 1895/oz. The USD outlook is not highly negative

It is clear that the US economy is looking more vulnerable given past excesses. However going forward the question is that will the US economy strengthen? The economy has to exhibit robust growth for many years to bring down its deficits

Currencies always move in pairs. It is one currency against the other. Hence if one currency depreciates the other currency appreciates.

The link between currencies, commodities and equities has never been as apparent as in the August-September 2011 period.