G-sec & INR might see pullback in the near term as inflation growth expectations are lower and Fed seem to be reducing the pace of rate hikes. Long term outlook is negative amid...
Active investments like investing directly in corporate bonds would help your money to beat current inflation rates and rising interest rates. Underperformance to inflation is compounding and resulting in steeper losses for investors.
Fixed Income investors are struggling with returns on Fixed Deposits plunging to 2% to 3% post-tax and long tenure bonds are prone to duration risk given the interest rate cycle is changing. How does one achieve higher post-tax returns, without minimal credit risk and liquidity risk?
RBL bank looks to be under strict supervision by RBI giving rise to fears of another Yes Bank situation where the bank was liquidated, and investors lost money in perpetual bonds of Yes Bank.
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?
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.
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.
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.
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.
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.
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
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.
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?
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.
In FY20 the Government of India conducted the conversion/switch of its securities through auction operations of Rs 2.249 trillion.
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.
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.
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.
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.
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.
"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.
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?
RBI balance sheet size increased by 30.02% in 2019-20 .
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 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.
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)
The Indian economy grew by 4.2% in FY20 (fiscal year that ended in March-2020).
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.
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.
Fed kept Trump rhetoric on rate cuts away from its policy decisions and guided for status quo on rates going forward.
RBI injected close to Rs 345.61 billion liquidity through its USD/INR swap.
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.
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.
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.
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.
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.
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.
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.
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 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.
State Development Loans (SDL) are trading at spreads of around 70bps over the benchmark 10 year gsec.
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.
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.
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.
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 year 2016 saw the least favoured currencies outperform.
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
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.
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.
In the week ended 18th November, FIIs sold INRBONDS for USD 1.79 billion.
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.
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 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.
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.
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 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 fiscal profligacy of the UPA government is starting to hurt when it comes to repayment of borrowings.
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 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.
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.
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.
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