Fixed Income And Currency Market

Gold is at all-time highs, UST is rising again!

Increased Volatility Could Offer Potential Buying Opportunities in Gsec

Who is the RBI Governor's 'Elephant in the Room' Now?

ECB and BoE could cut interest rates ahead of Fed

FY24 Sees Robust Debt Inflows of Rs.1306 Billion; FY25 Outlook Shines for Debt Market

BoJ and Fed to Make Headlines and Set Market Cues for the Week

Upcoming Inflation Data: The Missing Piece of the Fed's Rate Cut Timeline Puzzle for 2024?

Rising Yields, GDP Growth Surges, and Oil Prices Soar - Market Highlights

RBI and FOMC policy stances, likely to add more pressure on shorter end of yield curve

Tight Liquidity in the Market Likely to Push Short-Term Rates Higher

Domestic g-sec yield to come down driven by lower market borrowing in FY25

As Union Govt is on path of fiscal consolidation, market borrowing of GoI during FY5 is lower as compared that in current fiscal year. The reduction in market borrowing for FY25 is expected to lead to a decrease in the yield of domestic government securities.

USD surges amid stronger than expected job report.

The USD strengthened as the US nonfarm payroll report exceeded expectations, with 353,000 jobs added, reducing the likelihood of a near-term Federal Reserve rate cut. INR rose on robust factory growth.

USD gains after GDP data

The USD strengthened due to better-than-expected U.S. Q4 GDP growth of 3.3%. Despite a dip from the previous quarter, robust consumer spending drove the economy. India's INR held steady amid improved business activity and a rise in composite PMI to 61 in January.

Gross Centre plus state borrowing may stand between Rs 22 to 23 trillion in interim budget 2024-25

For FY25, it is expected that the domestic fiscal deficit will be budgeted at 5.5% of GDP. Gross market borrowing is expected to stand at around Rs 15 trillion while including SDL borrowing, it is likely to be in the range between Rs 22 to 23 trillion.

System liquidity continues to stay in deficit zone

The deficit in system liquidity persists driven by RBI’s withdrawal of accommodative monetary policy.

USD gains amid strong economic indicators

The USD strengthened for a second week amid expectations of Federal Reserve rate cuts, supported by robust U.S. retail sales and low jobless claims. Despite rising inflation, Fed officials hinted at cautious measures. INR weakened but remained supported as India's monetary policy aims for disinflation despite rising retail inflation.

G-sec yield curve continues to steepen in 2024

Given the current macroeconomic conditions, there is a strong likelihood of a rate cut by the US Federal Reserve in 2024. Additionally, according to the Reserve Bank of India's projections, inflation is anticipated to decrease to 4% in the second half of 2024, creating room for a repo rate cut. Consequently, it is expected that the Government Securities (g-sec) yield curve will persist in its steepening trajectory in the upcoming days.

USD weakens amid producer price drop

The USD declined at the week's end due to unexpected U.S. producer price decreases, hinting at a potential rate cut. While consumer prices rose, Federal Reserve's Loretta Mester deems it premature for rate cuts.

G-sec yield likely to experience range bound movement with downtrend

In current macroeconomic scenario, domestic g-sec yield is likely to exhibit range bound movement with downtrend. Fall in consumer inflation may pave the path for policy repo rate cuts towards the end of the current calendar year. The Union Government will follow the path of fiscal consolidation.

USD Rises on Strong Job Data, INR Gains Amid GDP Growth

The USD strengthened on robust U.S. job data, with nonfarm payrolls surpassing expectations. Federal Reserve watches for rate-cut possibilities. INR gained despite fluctuations, supported by India's projected 7.3% GDP growth.

USD Weakens on Inflation; INR Pressured by Oil and Tensions

The USD declined due to a lower-than-expected US inflation report, sparking anticipation of a Federal Reserve rate cut. INR weakened against the USD amid rising oil prices and concerns over Red Sea supply disruptions.

On average, a bullish sentiment persists in the G-sec market throughout 2023.

During the first half of 2023, the prices of G-secs experienced appreciation, attributed to the Reserve Bank of India (RBI) opting to pause rate hikes and maintain a status quo. However, during the latter half of the year, there was an upward movement in G-sec yields.

USD Weakens on Inflation; INR Pressured by Oil and Tensions

Synopsis: The USD declined due to a lower-than-expected US inflation report, sparking anticipation of a Federal Reserve rate cut. INR weakened against the USD amid rising oil prices and concerns over Red Sea supply disruptions.

On average, a bullish sentiment persists in the G-sec market throughout 2023.

During the first half of 2023, the prices of G-secs experienced appreciation, attributed to the Reserve Bank of India (RBI) opting to pause rate hikes and maintain a status quo. However, during the latter half of the year, there was an upward movement in G-sec yields.

USD tumbles on dovish Fed

The USD declined due to the Federal Reserve signalling future rate cuts, despite conflicting statements. European central banks maintained hawkish stances. INR rose amid USD weakness. Indian retail inflation increased in November but stayed below expectations

Bullish Trends in the G-Sec Market Amid Global and Domestic Indicators

Consumer inflation rose in November as compared to that in the previous month. However, g-sec yield fell as the rise in inflation was already factored by the market. The last RBI MPC has not given any guidelines about OMO sale of g-secs which was contrary to market expectation.

INR ended lower marginally as RBI maintain status quo.

INR slightly declined as the RBI maintained the repo rate at 6.50%. FY24 growth forecast increased to 7%, while CPI remained at 5.4%. USD rose on strong US nonfarm payrolls.

Longer-Term GSecs likely to Outperform Shorter-Term Ones

The recently concluded RBI policy suggests that long end yields may go below short end yields.

USD falls on dovish remarks by Fed's Powell

The USD weakened against major currencies due to Federal Reserve concerns about interest rates. Inflation cooled, with the US core PCE at 3.5% in October. India's INR remained strong amid accelerated factory growth.

RBI MPC likely to keep policy rates unchanged in forthcoming policy meeting

In the scenario of falling inflation and favourable economic growth rates, status quo on policy rates is expected from the central bank’s policy meeting.

G-sec yield curve continues to exhibit inversion

Negative system liquidity has caused the g-sec yield curve to remain inverted. Market awaits the outcomes of next RBI MPC meeting which will guide further g-sec yield movement.

USD weakens driven by weak economic data

As per latest published US FOMC minutes, further rate hike is unlikely in coming days. In addition to it, US business activity has been flat. Driven by all these factors, USD has fallen further as compared to previous wee.

Fall in inflation may prompt RBI to keep repo rate unchanged

Domestic inflation continues to fall as expected which strengthens the possibility of repo rate status quo by the central bank in the next MPC meeting.

USD posted steep loss as inflation came below expectations

Synopsis: The USD weakened as disappointing economic data suggested the Federal Reserve may not raise rates. US inflation eased to 3.2%, while falling oil prices boosted the INR, despite stable food inflation in India.

Issue of 50-year g-sec paper to raise liquidity and depth of domestic g-sec market

Issue of 5-year g-sec yield will provide a safe instrument with a higher yield without any default risk.

USD post weekly loss as Fed rate peak looms

The USD weakened as the Federal Reserve paused its rate hikes, citing tighter financial conditions. The U.S. labor market slowed with 150,000 job additions, while India's forex reserves surged despite INR depreciation.

10-year g-sec yield gained by 9.88% in last 10 year

Since last 10-year, the 10-year g-sec yield has declined to 7.36% from 8.72% which resulted in price appreciation. Between 2013 to 2016, g-sec price rose most significantly.

USD rises after strong GDP data

The USD strengthened as the US economy grew by 4.9% in Q3, with high consumer spending. INR weakened due to the strong USD. Oil prices fell on slow global economic growth concerns.

RBI’s possible OMO sales will cause system liquidity to fall further-Liquidity Cheat SheetOct 23

System liquidity stood at Rs 178 billion of deficit level as of 19th Oct 2023. Liquidity absorption through Reverse Repo and SDF stood at Rs 574 billion as of 19th Oct 2023.

Liquidity to remain scanty as RBI focused to align inflation at 4% with withdrawal of accommodative monetary policy

As per RBI’s published MPC minutes, the committee remained focused on withdrawal of accommodation to keep inflation progressively aligned to the target rate of 4%. Consequently, liquidity is likely to stay subdued as the central bank has announced to conduct OMO sales of g-secs.

USD weakens on Fed Chair Powell comments on interest rates.

Synopsis: The USD weakened as Fed Chair Powell signalled a steady interest rate stance despite economic strength. Rising Treasury yields and robust US labour market and retail sales influenced markets. INR gained amid USD weakness and central bank support.

USD rises after US inflation data.

The USD strengthened on rising yields and inflation concerns, while the US CPI exceeded expectations. The Federal Reserve maintained a cautious approach, and the IMF raised US growth projections. INR fell but was supported by RBI interventions, with India's trade deficit below expectations and CPI inflation declining but remaining above the 4% target.

Fall in consumer inflation may prompt RBI to reconsider monetary policy stance

In the wake of falling inflation and growth in industrial production, market eyes the possible outcomes of RBI MPC meeting.

RBI’s possible sale OMO makes yield curve inverted sharply

G-sec yield soared post announcement of possible sale OMO of g-secs in near future. Consequently, the current shape of the g-sec yield curve will continue to remain flat to inverted in the coming days.

USD Weakens Despite Strong U.S. Jobs Report

Despite a strong U.S. jobs report and surging U.S. Treasury yields, the USD ended the week lower. INR gains on Friday as RBI held rates steady, and India's service PMI exceeded expectations.

USD Strengthens on Positive Economic Data

The USD strengthened due to positive U.S. economic data and Federal Reserve optimism. Inflation exceeded expectations, oil prices rose, jobless claims were better than expected, and U.S. GDP growth confirmed stability. INR strengthened on eased U.S. Treasury yields and lower U.S. oil prices.

RBI likely to maintain status quo on policy repo rate in upcoming policy meeting

The central bank is expected to keep the repo rate at current level in the wake of both global and domestic factors. Domestic inflation softened in August which is expected to follow a downtrend which provides relief to RBI.

Union Government to Borrow Rs 6550 billion during H2FY24

Union Government has notified to borrow Rs 6550 billion during H2FY24. An ultra-long term paper of 50 years maturity has been introduced for the first time.Moreover, Rs 200 billion will be borrowed by Sovereign Green Bonds.

G-sec yield to benefit from inclusion in JP Morgan Emerging Market Bond Index

The upcoming addition of Government of India securities is expected to cause domestic bond market to deepen domestic bond market higher FII and FPI inflows. It is expected to have a positive impact on gilt yield in the near term. However, inflation and other macro factors will guide g-sec yield movement.

INR gains as JPMorgan decides to include India into global bond index

The INR strengthened due to inclusion in a global emerging market index, while the USD rose amid a hawkish U.S. Federal Reserve and strong jobless claims data, impacting global markets.

System Liquidity declined due to advance tax outflow

System liquidity fell further to deficit zone in September as compared to that i previous month due to advance tax outflow and incremental CRR.

Falling domestic inflation alleviates uptrend in g-sec yields

Domestic consumer inflation declined during last month as expected. The US Fed's outcomes will be closely watched and it will impact the RBI's monetary policy meeting next month.

USD strengthens following strong U.S. data and ECB rate hike

Strong US economic data and ECB rate hike boosted the USD. US retail sales and jobless claims exceeded expectations. ECB signalled the end of rate hikes amid slowing economic growth. INR struggled despite positive Chinese data; India's CPI inflation cooled.

How long will yield curve inversion sustain?

The g-sec yield curve is flat to inverted and has been so for a while now. Banks, the largest holders of g-secs, are finding that they are earning negative returns from g-sec investments as their borrowing costs are high with deposit rates at over 7.5%. How long can this last?

USD pushed higher on hawkish Fed bets

The US Dollar strengthened due to robust economic data, including lower jobless claims and rising PMI. Higher oil prices, driven by output cuts, had inflationary implications, affecting both the US and Indian economies.

G-sec yields have come off after an upward correction

G-sec yield has declined since the last two weeks after an upward correction. It is expected that domestic inflation will soften from this month. System liquidity also regained surplus level. Going ahead, inflation and US Fed policy outcomes will guide g-sec yield movement.

USD rises after solid jobs creation

The USD strengthened due to robust US job data, while slower wage growth was noted. Indian Rupee held firm as factory activity and GDP growth surged, in contrast to China's slowdown. Oil prices rose amid supply concerns.

USD strengthens amid Powell's cautionary remarks on inflation and rates

Synopsis: Federal Reserve Chair Jerome Powell's speech in Wyoming signalled potential interest rate hikes to curb inflation, boosting USD against major currencies. Weakest US business growth noted as INR faced USD pressure.

G-sec yield curve continues to remain flat

Driven by both domestic and global factors, g-sec yields have moved up. Consequently, the g-sec yield curve remained flat at the shorter end.

Incremental CRR causes system liquidity to be deficit-Liquidity Cheat Sheet-Aug 2023

RBI announced incremental CRR to absorb excess liquidity in last policy meeting. This has made system liquidity to become deficit during the current month.

G-sec yield to witness uptrend driven by rise in inflation and US Fed hawkish stance

Rise in domestic inflation and indication of rate hike by US FOMC have ignited g-sec yield to rise. In this scenario, 25 bps rate hike by RBI in next policy meeting cannot be ruled out.

USD rises on hawkish Fed bets

USD surged on rising treasury yields, boosted by Fed's rate hike expectations and strong US retail sales. INR hit record lows due to concerns about China's economy and USD strength amidst Evergrande's bankruptcy.

USD Rises on Inflation Data, Fed Outlook; China Trade Disappoints

USD ended higher as inflation data lowered rate cut expectations. US CPI rose to 3.2%. Fed officials differed on rates, Powell focused on upcoming data. Chinese trade data disappointed with significant export and import declines.

Short end yields to rise on ICRR

Although RBI has maintained status quo on rep rate G-sec yield may experience rise due to possible rise in inflation and absorption of system liquidity due to I-CRR.

RBI may raise repo rate by 25 bps rate

Owing to higher vegetable prices, inflation is expected to rise. Globally, central banks continue to hike rates. All these factors may prompt the central bank to raise policy repo rate by 25 bps with an end to rate hike cycle.

USD rises despite downgrade; INR weakens, oil surges

USD ended the week higher despite Fitch's credit rating downgrade of the United States. Slowing job growth raised hopes for a soft economic landing, yet higher wages may necessitate prolonged Federal Reserve interest rates. INR weakened amid overall risk aversion. Crude oil benchmarks rose with Brent at USD 85.25 and WTI at USD 81.73 per barrel.

USD Rises as Fed Hikes Rates, INR Resilient, Oil Surges

USD rose after the Federal Reserve's 0.25% interest rate hike, 11th in 12 meetings, aiming to slow the economy and curb inflation. Unemployment claims declined in the US. INR stayed strong against USD due to improved risk appetite. Oil prices surged amid hopes of avoiding a US recession and OPEC+ meeting concerns.

G-sec yields spike after Fed fund rate hike

US Fed raised fund rate by 25 bps as expected with indication further rate hike dependent on economic data. G-sec yield inched following FOMC’ rate action.

G-sec yield to exhibit range bound movement in near future

G-sec yield is expected to remain range bound driven by US Fed rate hike for a short period.

USD rises versus its major peers

USD ended a losing streak ahead of expected Federal Reserve rate hike. US jobless claims surprise with a decline, indicating a tight labor market. INR resilient against USD due to improved risk appetite and Chinese support for yuan.

System liquidity stays in comfortable position

Domestic system liquidity reclaims adequate positive zone as compared to Feb-Mar 23. Consumer inflation continues to fall below the upper limit of inflation pegged by RBI.

USD falls across the board as inflation eases

USD ended lower after soft US inflation data, but market expects Fed rate hike. Fed officials remain data-driven, considering more hikes this year. US consumer price index eased to 3% YoY in June. INR rose against USD due to positive sentiment, despite concerns over China's declining exports amid global growth slowdown.

USD falls after strong Fed-inspired gains

The USD weakened as US non-farm payroll fell short of expectations, while the unemployment rate decreased as predicted. INR faced pressure due to concerns about prolonged interest rate hikes. Oil prices rose on production cuts and positive US economic data.

SDL yield to rise driven by higher market borrowing

State borrowing cost is going to rise driven by higher market borrowing during Q2FY24 as compared to that in Q2FY23. States have already borrowed higher amounts during Q1FY24 as compared to Q1FY23.

Domestic g-sec yields have seen lows on hawkish global central banks

Owing to statements by the US Fed chairman of possible rate hikes ahead and by rate hikes by the ECB, US and global bond yields have seen sharp movement upwards which has caused domestic gilt yields to rise from lows.

INR steady after hawkish Powell

USD strengthened on Fed Chair Powell's hawkish comments, hinting at interest rate hikes. Strong US economic growth, labour market, consumer confidence. INR performing well. Oil prices steady ahead of OPEC meeting.

G-sec yield curve to remain flat at short end on INR and liquidity

In the current scenario of falling inflation and RBI’s stance on monetary policy, g-sec yield is likely to remain flat at the short end.

USD gains as aggressive central banks prompt risk aversion

USD strengthened amid risk-off environment from central banks' aggressive tightening. Powell's hawkish stance signalled more rate hikes. US business activity dropped. INR resilient with rising domestic equities. Chinese Yuan weakened after PBOC rate cut to stimulate sluggish local economy.

Fall in inflation will keep g-sec yield subdued

In the current scenario of falling inflation, g-sec yield is likely to remain subdued in a range bound manner as the central bank to hold current repo rate levels. The Rupee has also strengthened on the backdrop of falling inflation.

USD falls after the Fed pauses rate hikes

USD weakened as the Fed kept rates unchanged but hinted at future hikes. ECB raised rates while PBoC cut rates to support the slowing economy. US retail sales unexpectedly increased. India's inflation eased to a 2-year low. Global central banks' decisions and economic data influenced currency movements and market sentiment.

Indian Rupee remains stable following RBI policy outcomes

Indian rupee exchange rate against USD remained stable on weekly basis after RBI’s decision to maintain status quo policy repo rate. Rupee got support as RBI MPC has decided to remain focused on withdrawal of accommodation to control inflation.

All factors that are likely to impact government bond yield in next two months

Owing to falling consumer inflation and global factors, RBI has continued with the current policy rate. System liquidity has stood in a comfortable position. The g-sec yield curve is expected to exhibit flat to inversion in coming days.

Growth, fiscal deficit and inflation dynamics favour an extended pause in rates

Domestic GDP growth rate stood at 7.2% for FY23 while fiscal deficit has met budgeted target for last fiscal year. Considering these factors and inflation dynamics favour an extended pause in policy repo rates going ahead.

USD pressure eases after NFP

Last week, the USD faced pressure as Federal speakers hinted at skipping a rate hike, while robust employment numbers provided support. The INR rose due to improved global sentiment after the US Senate passed the debt ceiling bill.

Tentative debt ceiling agreement to strengthen USD

As per latest development, U.S. President Joe Biden and top congressional Republican Kevin McCarthy reached a tentative deal to suspend the federal government's $31.4 trillion debt ceiling. Consequently, it will make USD appreciate against other currencies in the coming days. Indian rupee has appreciated against USD driven by rise in USD inflow.

G-sec auction continues to remain bullish during FY24

Driven by RBI’s status quo on repo rate, fall in consumer inflation, improvement in system liquidity to surplus zone, g-sec auction cut-off yield has remained bullish in tandem with g-sec yield movement.

USD strengthens on debt ceiling optimism and strong data

The USD is gaining strength on hopes of a debt ceiling agreement and anticipation of the Federal Reserve's actions. US jobless claims have fallen, indicating a resilient labor market. Concerns arise over US inflation, while INR weakens despite a positive credit rating update by S&P Global Rating.

Yield curve will start to steepen from its current flatness

Driven by ease in system liquidity, RBI’s pause in rate hike and fall in inflation, the decline in short term yield is higher as compared to that of long- term papers which has made the yield curve to steepen.

INR Weakens, USD Gains Amid Cooling Inflation and Job Market

INR weakened on declining Indian retail inflation. USD gained despite cooling inflation and job market. US consumer price index eased to 4.9%, below forecasts. Consumer sentiment in the US dropped. Fed raised rates recently.

RBI to maintain status quo on repo rate

In the view of falling consumer inflation, RBI is expected to continue with current repo rate in coming MPC meetings. Globally, the US Fed indicated the end of the fund rate hike.

Narrowest Fed fund to Repo spread may be positive for g-sec yields

Declining spread between RBI repo rate and Fed fund rate may even prompt inflows of US Dollar.

USD falls despite positive jobs report

USD falls despite a positive US jobs report. The US central bank raised interest rates as expected, but the bigger change was that it no longer anticipates further rate increases to control inflation. The European Central Bank also made some adjustments to its policies, signaling that more tightening would be needed to curb inflation. In India, FPIs returned to equities due to strong corporate earnings.

USD falls amid rate hike expectations and economic slowdown

The USD ended the week lower, with expectations of a rate hike and later cuts from the US Federal Reserve. Inflation grew in March, but at a slower pace, and the University of Michigan consumer sentiment improved. US personal consumption expenditures rose, but the economy slowed down in Q1 2023. The Bank of Japan maintained its monetary policy, and the Indian Rupee appreciated.

Will the fall in 10-year & 5-year government bond yields continue?

Since last one month, 10-year & 5-year government bond yields have come down, driven by RBI’s status quo on policy rates, fall in consumer inflation and easing system liquidity. However, in the view of uncertainty in future inflation levels and high bond supply in coming days, it is yet to see whether this fall will continue or not.

INR declines amid souring mood, USD gains strength on hawkish Fed comments

The INR is experiencing a decline due to negative market sentiment, while the USD is gaining strength following comments from the Federal Reserve regarding potential interest rate hikes. In the US, there are signs of a slow weakening of the labour market, as jobless claims rise slightly above expectations, while existing home sales experienced a decline in March following a notable increase in February. Overall, the report provides insights into the current state of the currency and global bond markets.

Significance of 5yr OIS 5 yr g-sec spread

In the wake of RBI's status quo on policy rate, fall in inflation and surplus system liquidity, OIS rate will see downtrend indicating fall in short term yield in coming days.

Fall in India's inflation provides stability to INR

Decline in domestic inflation supported Indian rupee. In the view of decline in US inflation, FOMC is likely to slow down rate hike. Now market eyes on outcomes of forthcoming Fed meeting.

Inflation and liquidity to bring down short end yields

Short end yields to trend down on easing consumer inflation and high surplus liquidity

1st auction for FY24 is bullish for bonds

During the auction of government bonds on 6th April, auction cut-off yield came down as compared to that in auctions conducted during the end of FY23. This bullishness can be attributed due to RBI’s pause in rate hike recently conducted at the MPC meeting. On 6th April auction cut-off yield of New 5-year paper, 7.26% GS 2033 & 7.36% GS 2052 stood at 7.06%, 7.21% & 7.35% respectively as compared to cut-of yield of 7.40%, 7.45% & 7.38% of the papers 7.10% GS 2029, 7.10% GS 2029 & 7.40% GS 2062 respectively.

INR rose despite a surprise decision from the RBI

USD ended the week lower as weak economic data support the idea that the U.S. Federal Reserve may be near the end of its rate-hiking cycle. INR traded higher against USD as the Reserve Bank of India surprised the market by keeping the repo rate on hold on Thursday after six straight rate hikes.

RBI 25 bps rate hike nearing end of cycle?

25 bps rate hike could be close to end of rate hike cycle, OIS curves are pointing towards stability at 7% with short term rates below that level.

USD falls on weaker US data

USD continued to fall on a weekly basis. Dollar index fell by 0.59% as compared to previous week. Weak macroeconomic data continued to have an adverse impact on the Dollar.

Union Government to borrow Rs 8880 billion during H1FY24

Union Government is going to Rs 8880 billion during H1FY24. During H1FY23, GoI had borrowed Rs 8010 billion.

USD falls after the FOMC rate decision

USD falls after the Federal Reserve interest rate decision. The U.S. central bank raised interest rates by 25 bps taking the rate from 4.75% to 5%, in line with expectations.

Outlook for g-sec yield curve in fiscal 2023-24

The g-sec yield curve is flat going into the next fiscal year. Will the curve steepen, stay flat or invert in 2023?

USD falls as the market reprices Fed rate hike expectation

USD traded lower as the going turmoil in the financial sector boost the expectation of a less aggressive rate hike by the Federal Reserve despite stronger than forecast data.

364 day T-bill yields indicate longer term liquidity issues

The high levels on 364 day T-bill auction cut off yields indicate that liquidity is expected to stay tight over the next one year and this does not bode well for the shorter end of the yield curve. However, one year swap yields are not as pessimistic and excess liquidity to ease sooner than later.

USD jumps after a hawkish Powell

USD traded higher after hawkish comments from the Federal Reserve chair Jerome Powell as he testified before Congress. However, USD pares gain of Friday after U.S. jobs data suggests a slower rate hike path.

Indian banks too are facing huge MTM losses in g-secs

The SVB collapse has brought to the fore the risks of government bonds when central banks artificially held down yields to allow governments to borrow heavily. India has seen heavy government borrowing in the last two years when yields were kept low by RBI and banks are invested in g-secs at much higher prices than what they are today.

INR strengthens on foreign capital flow expectations

INR strengthened from close to record lows on expectations that India will see global capital flows, as US and Eurozone fight inflation and bring down growth

Inflation is helping government finances

Inflation is a positive factor in government finances, as it increases tax revenue on higher prices of goods and services and helps in reducing fiscal deficit on the back of higher nominal GDP growth. Does the government really want lower inflation and is RBI fighting a losing battle?

USD rises after hawkish Fed minutes

USD traded higher after the release of the minutes from the February Fed FOMC meeting and on data showing still-high inflation which reinforced expectations that interest rates could stay higher for longer.

Will 10-yr G-sec go to 8%? - Weekly Fixed Income Analysis

RBI MPC minutes for February suggests that inflation concerns are elevated for the MPC members and there are increasing signs that the policy makers have been way behind the inflation curve. G-sec yields will have to rise and rise fast.

Inverted US yield curve to drive down INR

3 month UST yields crossed 5% drawing in flows to USD from other currencies including INR.

Yield curve inversion points to liquidity concerns

Bond markets expect extreme tightness in liquidity till end March 2023 and short end yields are rising fast. Short end yields could spike in the next few weeks on advance tax outflows and year end demand for funds

USD rises on hawkish Fed commentary

USD traded higher last week on hawkish Fed commentary which also drives up the bond yields globally. Federal Reserve speakers, including Jerome Powell, have been hawkish this week, reiterating the need to raise interest rate further.

What is the RBI target for real interest rates?

Real interest rate is the spread between inflation and a T-bill or g-sec yield. Real rates have been hugely negative but have since come into positive territory indicating volatility in policy rates. This causes uncertainty in use of capital and also savings tend to come off. RBI has to find a right path and stick to it for a period of time

Outlook for new 10 year 7.26% 2033 in FY24

The new 10 -year benchmark g-sec 7.26% 2033 will see an upward bias in FY 24 given that inflation, government borrowing and rate hikes will still prevail

USD jumps after strong job report

USD traded higher last week after data showed that U.S. employers added significantly more jobs in January than economists expected, potentially giving the Federal Reserve more leeway to keep hiking interest rates.

USD marginally lower as US recession fears ease

USD ended marginally lower despite gaining in the later part of the week largely on the expectation that the Federal Reserve will slow the pace of rate hikes from the February meeting.

Gross Centre plus state borrowing at Rs 24 trillion in budget 2023-24

For FY24, it is expected that the domestic fiscal deficit will be budgeted at 5.5%-6.1% of GDP. Gross market borrowing is expected to stand at around Rs 16 trillion while including SDL borrowing, it is expected to cross Rs 24 trillion for next fiscal year. It can be noted that Rs 4401.29 billion government bonds are to be matured in FY24.

USD slips lower as recession fears mount

USD continues to hover around 7-month lows amid rising worries of an economic slowdown in the US and expectations that the Federal Reserve will slow the pace of interest rate hikes in the coming meetings.

Money market rates to rise sharply higher in next two months

Tight liquidity conditions in the next two months for the end of fiscal year can drive money market rates sharply higher

Fall in inflation may improve fiscal deficit target set by Union Government for FY23

During Dec 22, consumer inflation continued down trend from previous month. Tax collection increased during Apr-Nov 22 as compared to previous fiscal year. Rise in tax collection and fall in inflation are likely to help the Union Government to achieve the fiscal deficit target of 6.4% of GDP for FY23. As the impact of the pandemic has been mitigated, the Government of India is likely to seek fiscal consolidation from here.

USD down as inflation eases

USD edged lower last week after data showed U.S. inflation was easing, prompting bets that the Federal Reserve will be less aggressive with rate hikes going forward. India’s CPI inflation falls to 5.72% in December from the 5.88% level seen in November.

Long end of the g-sec curve needs to rise fast to offer any value

10 -year benchmark bond yields rose last week to its highest levels in more than a month on the back of a high CAD that came in at 9 year highs and in anticipation of continued high borrowing expected in the budget for the next fiscal year. The bond market will want higher yields to absorb next years borrowing without losing money.

USD higher after NFP indicates a healthy labor market

USD traded higher last week after data pointed to a strong jobs market, supporting the prospect that the Federal Reserve could keep up the pace of aggressive rate hikes.

Highest CAD in almost 10 years to hasten rate hikes

Rising CAD along with capital outflows on global rate hikes is placing high pressure on the Indian Rupee and this will make RBI hike rates faster and higher than expected.

INR ends 2022 by falling more than 10%

INR ended 2022 as one of the worst-performing Asian currencies with a fall of 10.14%, its biggest annual decline since 2013. However, last week, USD fell as the market participants are weighing the impact of China's rapid loosening of its strict COVID-19 rules with a surge in new infections.

USD edges lower as risk sentiment rises

USD weakened last week given the risk-on sentiment, while the Japanese yen remained in demand in the wake of the Bank of Japan's shock policy shift.

Long term bond yields overpriced and need to rise

Long term g-sec yields are yet to fully price in uncertainty on inflation, global risk factors and high fiscal deficit. Yields need to rise to give investors any cause for comfort.

Hawkish Fed bets support the USD

USD traded higher before falling on Friday. The broad strength in USD was exhibited largely on the back of the Fed FOMC meeting and its forward guidance on interest rates.

What is the yield curve saying?

US Fed hiked interest rate by 50 bps as per expectation with indication of further rate hikes in coming days. It is expected that the fed fund rate will peak in 2023. Will this inversion continue and what does it mean for the gsec yield curve?

USD gains despite recession fears

USD ended the week higher amid fears that the U.S. economy was heading toward recession, ahead of next week’s crucial Federal Reserve meeting. INR falls as inflation is set to cool in November.

Are markets immune to rate hikes?

RBI hiked rates by 35bps last week and indicated more rate hikes ahead. Bond markets saw g-sec yields rising from lows but are still below highs seen a couple of months ago. OIS yields too are below highs after climbing post RBI policy. Have bond markets already factored in full extent of rate hikes?

25bps or 50bps rate hike by RBI this week?

Market factors seem to favour a 25bps rate hike by the RBI in its policy review this week but prudence is better than valour and a 5obps rate hike to counter potential inflation and global risk aversion will go a long way in easing market nervousness on future direction of yields.

USD falls as Powell says rate hikes may slow

USD fell last week after Federal Reserve Chairman Jerome Powell said that the U.S. central bank could scale back the pace of its interest rate hikes "as soon as December," driving emerging currencies higher against the USD.

Can g-sec yields stabilise at current levels of 7.30% on 10-year bond

10-year g-sec yields have come off from highs of 7.50% to trade at levels of 7.3% and market seems comfortable at these levels given that auctions have been going through smoothly at these levels. Inflation, borrowing, government revenues, liquidity, inr and global bond yields indicate stability but risks remain on structural inflation issues.

USD extends losses as Fed minutes signal slower rate hikes

USD traded under pressure last week following the dovish FOMC minutes released on Wednesday. The market is growing increasingly confident that the Federal Reserve will slow the pace of rate hikes in the December meeting to 50 bps driving UST yields down.

USD rises with bets on hawkish Fed

USD traded higher last week as investors eyed rising bond yields and continued to make bets on the U.S. Federal Reserve's interest rate hiking path

G-sec yields to look beyond fall in inflation

Inflation is showing signs of easing from higher levels but for a longer-term stability of rates, the structural issues of artificially held rates and huge government debt have to be sorted. Central banks have held rates low for too long even as governments have borrowed heavily to support economies for many years now.

Temporary respite for g-secs on US inflation data

US inflation data spurred a sharp rally in g-sec prices and OIS yields. However, this is temporary as structural issues for interest rates have a long way to go before being addressed.

USD falls sharply as bets on a 50 bps rate hike surge

USD ended sharply lower last week after US inflation data came in below expectations. US 2- and 10-year treasury yields post the biggest single-day fall on Friday in over a decade.

Is there a structural shift in global government bond yields?

Inflation and the sharp backing up of global bond yields have unnerved central banks, governments and investors alike and this will stay for a long period of time as ultra loose monetary policies and high government debt are finally showing the risk of such policies for extended periods of time. Interest rates can settle structurally higher globally.

USD rallies after Fed rate hike

USD ended higher last week after the fed raised interest rates by 75 bps. The statement released had a dovish lean, suggesting that the fed was nearing the final phase of its rate hiking cycle.

What will RBI do on 3rd November?

In a recent development, RBI has scheduled an additional meeting of Monetary Policy on 3rd November in the current scenario of elevated inflations, rupee depreciation and global rate hikes. Will the central bank raise the repo rate beyond 6.5% to cope with global rate hikes?

USD falls on bets the Fed will slow hikes

USD ended the week lower after the release of disappointing economic data, driving the expectations that the Fed could slow the pace of rate hikes.

Repo rate most likely at 7% in the next 6 months

The sharp rise in 1 year OIS yield and 364 day T-bill yield to 7% levels suggest that RBI will hike the repo rate to 7% in the next 6 months to control inflation and prevent further INR depreciation and also maintain market stability in the face of a global bond crisis.

USD lower despite a hawkish statement from Fed officials

USD ended the week lower despite rising sharply against major peers tracking US treasury yields higher on Friday. INR rebounded from fresh record lows after touching a psychologically crucial level of Rs 83 a USD during the week

USD higher, 10yr UST tops 4% as inflation higher than expectation

USD is rallying higher across the board in risk-off trade, reflected in a steep selloff in the equity markets. INR ended lower amid broad USD strength and CPI inflation coming at 7.41% in September higher than the 7% seen in August and higher than the expectation of 7.30%.

The flat yield curve is saying nothing yet

The g-sec yield curve is flat with 1 year to 40-year bonds all trading in a 50bps to 60bps range from 7% to 7.6%. However, reading into this flat shape tells us nothing of directions of yields going forward. Direction of yields is up given domestic and global factors.

RBI will have to hike rates faster as per g-sec yield curve

The g-sec yield curve is flat and looking to steepen on the back of the INR hitting new lows consistently, forcing RBI to hike rates aggressively to curb sharp falls.

INR breaches Rs 82 per USD and on way to Rs 85

INR on Friday breached yet another psychologically crucial level of Rs 82 per USD on rising crude oil prices and on chances of aggressive rate hikes by the US Federal Reserve that led to a rally in the USD globally. USD was higher on the tight labour market and hawkish commentary from the Federal Reserve officials

INR to determine g-sec yield direction

The INR is becoming the key factor in determining the direction of g-sec yield that have risen sharply in the 1st half of this fiscal year. Global bond crisis can cause more volatility to g-sec yields.

INR pares losses after RBI hikes rates by 50 bps, more hikes are expected

INR ended the week lower but gained after RBI hiked rates by 50 bps. USD fell back across the board despite a bout of stronger than expected release of data during the week. GBP rose sharply from record lows hit on Monday after the Bank of England conducted rounds of bond buying to stabilize financial markets.

INR plunges and outlook still negative

USD trended higher, boosted by a combination of hawkish Federal Reserve bets and safe haven flows. Global bond yields hit new multi-year highs after global rate hikes. INR along with other emerging market currencies crashed as risk sentiment plunged.

5-year G-sec yield to hit 8% soon

The fast-depreciating INR and tight liquidity conditions along with sharp rate hikes by the RBI to counter Fed rate hikes will push up yields at the short end of the curve and this will take up the 5-year g-sec yield to 8% levels from current levels of 7.4%.

USD gains amid sharp Fed rate hike expectations

USD rose yesterday after upbeat data boosted expectations that the Federal Reserve will raise interest rates at a faster pace in the coming months. INR fell on the expectation that the Indian current account is expected to widen to a decade high in the April to June quarter.

G-sec yield curve to invert on liquidity crunch and rate hikes

System liquidity has dropped sharply and is likely to go negative on multiple counts including RBI selling USD, high credit offtake and rising inflation leading to policy tightening. OIS curve has jumped at the short end and g-secs are likely to follow.

INR steady despite sharp drop in fx reserves

India’s forex reserves have dropped by over 15% from peaks to USD 540bn on the back of rising trade deficit and RBI fx sales. However, improved FII inflows into equity and prospects of debt flows on the back of gsecs inclusion in EM bond indices have helped the currency to stabilize.

Indian bond market to deepen on G-secs in JPM Index

Bond market depth and liquidity will be major beneficiaries of Gsecs being included in JPM Index, as global interest will come in government and corporate bonds. Bond yields will initially react positively but going forward macro economic factors will prevail.

USD rises after strong data

USD exhibited broad strength last week, gaining against all the major world currencies after the release of strong US economic data. INR after touching record low levels on Monday, recovered in the later part of the week.

Strong government finances help ease borrowing worries

High inflation is pushing up gst collections and is helping contain fiscal deficit despite higher subsidy outgo on food, fuel and fertilizer. 10 -year g-sec yield has come off on easing worries of higher borrowing but concerns on inflation remain anchored.

INR falls on Powell speech

USD ended the week higher after Federal Reserve Jerome Powell signalled that the Fed will keep hiking interest rates and leave them elevated for a while to fight inflation. INR trades lower amid broad USD strength

Strong headwinds for the new 10-year benchmark g-sec

The new 10-year benchmark g-sec, the 7.26% 2032, is facing strong headwinds and can lead to loss for long term investors, in a similar way of the last five 10-year benchmark g-secs auctioned.

USD edges higher following Fed’s minutes

USD trades higher after the release of the latest FOMC minutes. Fed’s minutes revealed that some policy members saw “little evidence” for inflation to peak, helping lift the USD.

Will money become tight in the system?

System liquidity could turn negative and make the cost of funds extremely high leading to fall in prices of money market securities.

USD trades lower as inflation concerns ease

USD traded lower last week as U.S. inflation was not as hot as anticipated in July. INR ended the week lower against USD. India’s retail inflation, which is measured by the Consumer Price Index (CPI), eased to a 5-month low of 6.71% in the month of July, down from 7.01% in June.

Why RBI prefers high inflation?

RBI is still behind the inflation curve with repo rate at just 5.4% against inflation at close to 7% and is in no hurry to raise rates. High inflation brings down relative numbers like fiscal deficit and current account deficit. Bond yields will have to stay high given RBI preference for high inflation.

US jobs growth to hasten RBI rate hikes

Sharp rise in payrolls and wage growth in US will force Fed to hike rates sharply higher, causing high volatility in global markets. RBI will have to respond with more sharp rate hikes

INR strengthens after RBI rate hike

USD exhibited a broadlm rally after a stronger-than-expected U.S. payrolls report. INR ended the week higher as RBI raised the key interest rate by 50 basis points to 5.4% up from 4.9%.

USD falls as the Fed hikes rates by 75 bps

USD fell across the board after the Federal Reserve raised interest rates by 75 bps, as expected, for the second straight meeting. INR is capitalizing on the weaker USD as it continues to rise from all-time low levels.

RBI can do a one time rate hike to 6% for multiple gains

At a time when Fed and ECB have done big bang rate hikes, RBI should also follow suit and do a rate hike to take the repo rate to 6%, which is the upper end of the inflation target.

Calm before storm for government securities

The government bonds are going to experience the impact of domestic factors such as high inflation, falling rupee, policy rate hikes, higher market borrowing and global factors such as global rate hikes, elevated global inflations in near future.

INR falls past 80 a USD; RBI says it has zero tolerance for INR volatility

USD fell last week as the European Central Bank raised interest rates more than expected on Thursday as concerns about runaway inflation trumped worries about growth. INR ended the week marginally higher, helped by falling oil prices and RBI intervention.

USD continues to rise; INR falls to record lows as recession risks loom

INR ended slightly short of Rs 80 a USD mark on Friday after falling to a record low this week amid sell off in riskier assets. USD exhibits broad strength as expectation of more fed rate hikes build after US inflation, as measured by consumer prices rose to 9.1% year on year in June.

RBI confidence on inflation coming off is misplaced on ultra high WPI

The continuing uptrend in wholesale inflation will cause INR to depreciate further. Government bond yields are likely to continue uptrend and the 10yr g-sec yield is expected to cross 8% in coming days.

INR to fall sharply if RBI goes slow on rate hikes

INR is trading at record lows and RBI governor Shaktikanta Das is underplaying inflation fears and is confident inflation will come off from October 2022. Given this, RBI rate hikes may be much slower than Fed or ECB and this could pull down the INR sharply.

Is RBI soft pedalling on rate hikes?

RBI governor Shaktikanta Das stated that CPI inflation that is trending at over 7% levels is expected to cool off from October. Is the RBI going to go slow on rate hikes and is this a risk to markets?

RBI forex measures

RBI in a statement release states that, “The global outlook is clouded by recession risks. Consequently, high risk aversion has gripped financial markets, producing surges of volatility, sell-offs of risk assets and large spillovers, including flights to safety and safe haven demand for the USD.

Borrowing cost of states likely to rise further due to higher market borrowing

As compared to Q1FY23, states of India will borrow double during Q2FY23 than what they did in the same quarter of last year, which may cause State Development Loans (SDL) yields to rise. In addition, possible policy repo rate hike by the RBI will expedite the yield uptrend.

USD rises after hawkish Fed comments

USD is rising on safe-haven flows. The same fears hurting demand for riskier assets are boosting demand for the USD. INR is hovering around its record lows, data showed that Indian factory output grew at the slowest pace in nine months.

INR is on a steady decline

The INR weakened last week to close at record lows. Widening CAD, global recession fears, inflation and high fiscal deficit is pulling the INR down. The outlook for the INR is negative and RBI is unlikely to intervene heavily and protect the currency from declining further.

Does USD/INR foretell g-sec yields?

The INR is at record lows and a study of past correlation suggests that g-sec yields will rise on further declines of the INR.

INR depreciation can accelerate on flat UST yield curve

The INR touched record lows against the USD last week on the back of a selloff in equities on worries of stagflation/recession in the US given a flat UST yield curve. INR is likely to touch Rs 80 to the USD on continued sell off in equities.

Flat UST curve and its impact on G-secs, INR

The flatness of the UST yield curve where yields from 3 year to 30-year USTs are almost the same indicates stagflation/ recession along with high inflation and this will impact g-sec yields and the INR.

Should RBI protect g-sec yields and INR?

RBI governor Shaktikantha Das said that the central bank is watching rising g-sec yields and will intervene, when necessary, similarly for the INR. Is this intervention effective?

Inflation prints spooks currencies

The continuous rise in inflation in the US and Eurozone at 4-decade highs have spooked currency markets, which are not really finding safety given fall in JPY and rise in Euro against the USD.UST and Eurozone bond yields are rising sharply sending out fresh worries on sustainability if debt of governments.

Short end bonds can be riskier than long end bonds

Inversion in the yield curve where short end bond yields are higher than long end bond yields make investments in short maturity bonds riskier than investments in long maturity bonds. The g-sec yield curve could invert soon on rate hikes and tight liquidity conditions.

Will the INR depreciate further?

The INR is facing weakness due to issues of global central banks tightening policy, capital outflows, widening trade deficit and rising fiscal deficit along with high inflation expectations. In the short term, INR will continue to depreciate but in the longer term, can attract more FDI flows on global outsourcing.

Will INR continue its fall?

The INR is trading at record lows with weakness on multiple fronts of capital outflows, rising trade deficit, high fiscal deficit and rising inflation. RBI cannot sell USD consistently given that market forces ultimately come out on top.

Liquidity could become an issue for bond markets

One year OIS yield at 6.17% suggests that overnight rates could rise to over 6% levels on liquidity tightening along with rate hikes. Bond markets are starting to be wary of liquidity drying up in the system.

USD gains as investors turn risk averse

USD continues to gain as market participants sought shelter in safe-haven assets amid fears of the impact of surging inflation which will prompt US Fed to hike rates aggressively. INR trended at record lows on flight of capital.

What does the flattening of G-sec yield curve mean for bond markets

Synopsis: The g-sec yield curve has flattened considerably with short end yields rising sharply. This indicates that inflation will push the RBI to raise rates much faster than expected. However, heavy government bond supply will continue to pressure longer end yields giving no respite for bond markets.

10-year G-sec yield can rise to 8% on INR weakness

INR fell to record lows against the USD last week and RBI had to sell USD to support the INR from falling too fast. Record government borrowing, high inflation and rising global bond yields are driving money out of risk assets. A weak INR with high inflation will force RBI to raise interest rates sharply higher and this can take up 10-year G-sec yield to over 8% levels.

USD surges to new 20yr highs over global growth concern

USD climbed to a fresh 20-year high on Thursday as concerns persisted that central bank actions to drive down high inflation would crimp global economic growth boosting its safe-haven appeal.

Yield curves have a long way to go for stability

RBI hiked rates in an out of turn policy action last week and g-sec and OIL yields surged with a flattening bias of the yield curve. The rate hike cycle is just beginning and its a long way to go for market stability

USD & UST higher amid central banks changed stance

Fears over rising inflation, stagflation, and more hawkish central banks are making market sentiment weak and boosting the demand for more safe haven assets. The UST yields back over 3%, and the USD traced yields higher.

USD trades higher amid growth worries

USD trades higher on the back of safe haven flows amid fears over slowing global growth. Bets on rising U.S. interest rates, alongside doubts about growth in Europe and China, gave the safe-haven U.S. currency a boost.

G-secs are at much less risk than UST and German Bunds

US, Eurozone and India CPI inflation are at 8.5%, 7.5% and 7% respectively while 10-year bond yields are at 2.9%, 1% and 7.15%. The Fed and the ECB have a lot of catching up to do on Inflation as they are far behind the curve while RBI is in a better position. This is a strong point for inflows into G-secs.

G-sec yields stabilise at higher levels as market plays carry game

G-sec auctions are going through smoothly without RBI having to intervene too much to protect bond yields from rising too fast. The bond market is getting good carry and if yields are stable, the carry game will continue.

USD surges on aggressive Fed hike outlook

USD traded higher as it drew support from Federal Reserve Chair Jerome Powell's comments on Thursday that backs a 50-bps tightening at next month's policy meeting, as well as his remarks on a likely consecutive rate hikes this year.

INR falls & USD rises as inflation spikes

USD rose as high inflation supported the expectation that the Federal Reserve will hike rates more aggressively, possibly with a 50-bps rate hike in May and another in June. This comes after a 25-basis point rate hike in March. India's CPI inflation rose to 6.95% in the month of March which is higher than the 6.07% reported in February.

Rising interest rate cycle to continue for minimum 3 years

High and rising inflation expectations, heavy borrowing by government, ultra-low policy rates, all point to a longish rising interest rate cycle where RBI will have to continuously raise rates to bring policy to even neutral levels. Bond markets will play for rising bond yields and investors will have to position their investments for higher interest rates and inflation.

G-sec yields soar as bond markets worry over rate hikes, supply, inflation and liquidity

Owing to outcomes of RBI MPC meeting last week, government bond yields soared on multiple market worries. Although the central bank kept repo rate unchanged, it indicated rate hikes in coming months with withdrawal of excess liquidity. RBI’s stance on monetary policy will turn to hawkish from current accommodative..

RBI’s changing stance supports INR

USD traded higher last week by 1.18% against major world currencies as it was supported by the hawkish federal reserve stance and by robust US service sector data. INR pared losses on Friday when the RBI governor mentioned the intention of withdrawing the accommodative stance.

10-year G-sec yields to cross 7.5% on supply and UST yield curve inversion

Heavy g-sec supply in first half of fiscal 2022-23 along with US treasury yield curve inversion will sharply push up g-sec yields in the coming months.

USD falls despite robust job report

USD ended the week lower by 0.16% against major peers despite the release of robust U.S. jobs data. Oil prices fell sharply after the US mulled over the possibility of a record release of strategic oil reserves (SPR). Falling oil prices are helping INR to gain ground

Union Government to Borrow Rs 8.45 trillion during H1FY23

Out of total issuance of Rs 8.45 trillion, 10-year maturity bonds will contribute largest amount of 20% followed by 14 years bonds of 15.38% during H1FY23.

USD rises on hawkish Fed bets

USD trades higher last week after Federal Reserve officials have been out in force supporting a more hawkish stance from the US central bank in order to tame elevated inflation. US economic data was also upbeat boosting demand for the USD. INR falls amid elevated oil prices

Government borrowing analysis

Market awaits Government borrowing calendar for H1FY23 to be notified by RBI, which will guide direction of g-sec yield movements in coming days. While record amount of Rs 14950 billion as gross borrowing has been budgeted for FY23, around 60% is expected to be borrowed during H1FY23.

How will RBI react to Fed rate hikes?

The Fed has signalled a tighter monetary policy with rate hikes and balance sheet size reduction on the back of very high US inflation. Bond markets in India will try and guess RBI stance on Fed rate hikes for direction on bond yields. How will RBI react?

USD falls despite Fed rate hike

USD ended the week lower despite the US Federal Reserve hiking interest rates. The US central bank raised interest rates by 25 basis points in a move that was widely expected by investors. INR rises despite ongoing global economic risks.

Fed rate hikes and outlook for bonds, INR and Sensex, Nifty

G-sec yields will factor in rising interest rate cycle, INR can see volatility on risk aversion in global markets while Sensex and Nifty will be ranged.

USD trades higher ahead Fed FOMC

USD ended the week higher following the release of US inflation data. The data showed that the cost of living in the US jumped to a fresh 40 year high of 7.9%. This was up from 7.5% recorded in January. INR edges lower as near tern inflation expectations eased, however, this is likely to be short-lived.

RBI gave the market Rs 10 trillion on bonds in FY22 as yields rose continuously

In the first half of fiscal 20221-22, RBI held g-sec yields from rising as it coerced markets to absorb government bond supply at lower yields. G-sec yields then started rising in the second half and is at its highest levels at the end of the fiscal year, leaving investors with high losses due to rising yields.

Central banks nightmare is just beginning

The Fed chair, Jerome Powell, testified last week that rates will start to rise this month, but pace of rate hikes will be slow given the Russia & Ukraine crisis. With inflation at 4-decade highs and interest rates at all time lows, Fed is treading thin waters as commodity prices are surging and US labour markets are very tight leading to high wage growth. Other central banks are facing similar situation and markets are starting to doubt their ability to handle the current crisis.

USD rises on safe haven flows

Safe-haven flows are lifting the USD as the Russian invasion into Ukraine deepens. As well as safe-haven demand the USD is also being supported by strong data and by expectations of the Fed hiking rates this month. INR continues its last-week fall as risk aversion continues to dominate global financial markets.

Why GOI Floating Rate Bond Prices have fallen despite rising yields

GOI FRBs should ideally perform well when interest rates are rising but the prices have actually fallen over the last one year. This is due to the absolute yields staying very low as RBI has kept rates low and is continuing its accommodative policy.

USD rises on safe-haven flows as Russia invades Ukraine

USD traded higher last week amid safe-haven flows and further being boosted by upbeat economic data. In the central bank's latest monetary policy report to Congress, the Fed warned inflation could last longer than anticipated should labor shortages and fast-rising wages continue. INR falls as oil prices rise over USD 100 a barrel.

Explainer – Latest RBI USD 5 billion sell/buy swap auction

The RBI has been intervening heavily in the forwards market over the last two years as it tried to sterilize foreign inflows to prevent the currency from appreciating quickly.

USD eases on safe haven outflows

USD ended marginally lower as risk sentiment improved on Friday by the news that the U.S. and Russia were set to discuss the Ukraine crisis next week, raising hopes for a diplomatic solution. Additionally, the minutes from the January Federal Reserve monetary policy meeting were also less hawkish than what was expected, which sent USD lower.

Bank credit is growing faster than deposits and g-sec appetite will drop-Weekly Fixed Income Analysis

Banks Incremental Credit Deposit ratio (ICDR) has risen from 26% to 75% and this will reduce appetite for g-secs at a time of record g-sec supply.

Potential shortfall of Rs 5 trillion in demand for g-secs and SDLs for FY23

Heavy supply of G-secs and SDLs for fiscal 2022-23 is seeing a huge gap in demand and this will lead to rising g-secs yields or higher inflation if RBI prints money to invest in g-secs.

USD strengthen as market eyes 50bps Fed rate hike in March

USD trades higher as soaring inflation boosted expectations that the Fed will look to aggressively raise interest rates across the year. The policy divergence between India and other developed nations is dragging demand for the INR.

RBI needs to comfort markets on borrowing, Fed rate hikes and inflation

Multiple fears gripped bond markets with the government announcing record borrowing in its budget for fiscal 2022-23. Along with record borrowing, Fed rate hikes. Surging oil prices and inflation are unnerving bond markets and RBI needs to address all these concerns in its policy this week.

UST yields above 1.9% amid NFP suprise

USD ended the week sharply lower in nearly two years, as the Bank of England (BOE) and European Central Bank (ECB) tightened their monetary policies. Job growth rose far more than expected in January despite surging omicron cases driving 10yr UST yields higher by 11 bps to 1.93% on Friday.

RBI to have a difficult task of managing inflation and borrowing

Given expected growth of 13% in fiscal 2022-23 and a fiscal deficit pegged at 6% of GDP, net government borrowing is likely to be at around Rs 7 trillion. Coupled with state government borrowing the supply will still be heavy and RBI will be hard pressed to manage the borrowing if inflation continues to rise.

USD higher on Fed rate hikes

USD ended the week higher tracing UST yield movement as it touched 1.87% levels during the week amid expectation of a rate hike in March by the Fed. INR ended the week lower amid broad strength exhibited by the USD during the week and as oil prices continue to be at elevated levels.

Fed to act quickly amid growing inflation concern

Fed is sounding alarm on inflation, and this is causing fall in Sensex and Nifty and also rise in gsec yields. INR is also under pressure on FII sales and RBI is likely to raise rates this year even as government increases spending in its budget 2022-23. Bond ladders are the best strategy for investors looking to navigate weakness in equities and rising interest rates.

USD higher ahead of Fed FOMC

USD ended the week higher tracing UST yield movement as it touches 1.87% levels during the week amid expectation of a rate hike in March by the Fed. INR ended the week lower amid broad strength exhibited by the USD during the week and as oil prices continue to be at elevated levels.

No respite for bonds, as oil prices hit budget expectations

RBI devolved around 15% of the Rs 130 billion 5 year auction on to the underwriters at over 2 year high levels of 6.07% in the bond auction held last week. Bond markets are nervous on union budget due to rising oil prices and are losing appetite for bonds.

USD falls even as Fed Powell says rates could rise faster

USD lost ground after the producer price index, which measures inflation at the wholesale level rose by less than expected in December. INR ended the week higher tracing domestic equities and amid weakness in USD.

New 10 year G-sec at 6.54% still needs RBI protection

RBI devolved around 42% of the Rs 130 billion auction of the new 10 year gsec maturing in 2032. The cut off yield was at 6.54%, which would have been higher if not for RBI intervention.

Fed tightening intact despite weak jobs report

USD ended marginally higher last week after hawkish minutes from the Fed's Dec meeting, released on Thursday, firmed up the expectations that the US central bank could raise interest rates at a faster pace this year. INR ended the week marginally higher after gaining sharply on Friday as USD exihibited broad weakness.

G-secs fret over budget, rate hikes

G-sec yields continued its upward trend last week as markets faced heavy supply of SDLs even as rate hikes and budget looms ahead.

Bond Market Outlook-Jan 2022

Bond yields are likely to maintain uptrend as domestic core inflation stood at 6.2% levels along with record level of inflation in US.

USD edges lower as investors seek riskier assets

USD fell last week amid growing optimism over the global economic outlook, despite Omicron cases surging. INR traded higher tracing domestic equities higher. The Sensex and the Nifty are pushing higher as risk sentiment continues to improve.

10-year G-sec yields worst performer in 2021, will it continue in 2022?

10 year G-sec yield has risen in the year 2021 and has underperformed equities by over 20%. INR has largely remained steady in a Rs 74 to Rs 76 band. Outlook for gsecs is still negative given policy normalisation by central banks amid rising global inflation that threatens to be structural in nature.

Fading Omicron worries supports high yielding currencies

USD fell last week amid growing optimism for the global economic outlook despite the surge of Omicron-variant Covid cases. Further, the positive development on the vaccines front boosted the investors' appetite for risk, lifting stocks and pushing U.S. Treasury yields higher.

Gsec yields jump as RBI sells USD to keep INR steady

RBI stepped in to keep markets calm as INR saw high selling pressure while gsec yields jumped to highest levels since almost 2 years. Volatility will rule markets going into calendar year 2022.

USD trades higher as Omicron spreads amid rate-hike talk

USD ended the week higher amid talk of interest rate hikes by central banks and concerns about the spread of Omicron cases. Key central banks have adopted different policies as uncertainty about the omicron COVID-19 variant’s impact on economic recovery remains. The Bank of England (BOE), and the European Central Bank (ECB) adopt a hawkish stance.

Interest rate risk premium on Gsecs to increase

Fed, BOE and ECB are starting to turn wary of structural high inflation taking hold of economies and are acting accordingly despite Omicron fears on the economy. Gsec yields are trending higher and will stay higher on rising interest rate risk premium.

Fed gets well behind inflation, India could see market bubbles and high inflation

Federal Reserve (Fed) came out with aggressive bond tapering program (USD 60 billion from January 2022), 3 rate hikes starting from March 2022 and 2 rate hikes in 2023 & 2024 respectively.

High inflation puts Fed back in focus-Weekly Currency Analysis

USD exihibited high volatility during the week amid increased restrictions in parts of the world to contain the spread of COVID-19, including the new Omicron variant, which tempered investors' appetite for riskier currencies. However, with Omicron concerns easing and inflation at a multi-decade high level, the Fed and the timing of the first-rate hike is back in focus.

Government bonds are turning riskier than high yield bonds-Weekly Fixed Income Analysis

Inflation is surging across the world but interest rates are at zero percent levels or even negative in many countries. Central banks have lost the will to fight inflation and are instead watching asset prices move higher and add to inflation expectations. High yield credits benefit while government bonds are at high risk of price erosion.

UST yield plunge, good or bad for gsecs?

10 year UST yields have plunged by 30bps over the last couple of weeks as risk aversion gripped markets. Will gsec yields follow suit or go the other way round and rise on financial market instability?

Global bond yields fall on demand for safe assets

The safe-haven yen and Swiss franc trade higher on Friday as global equities and bond yields fell on fears about the spread of the Omicron variant of COVID-19, which has resulted in renewed restrictions in parts of the world.

Is the Gsec curve priced for rate hikes?

What will happen to 5-year, 10-year, 15 year and 30, 40-year gsec yields when normalises policy and starts to hike rates? Will yields rise sharply or will it be muted as the yield curve is steep.

COVID fears send risk assets lower

USD edged lower on Friday, weighed by gains to the safe-haven yen and Swiss franc, as market participants turned risk-averse in the wake of the discovery of a new highly-mutated coronavirus variant.

USD dominates as inflation heats up

USD is hovering around a 16-month high level amid surging inflation and expectations of a potentially more hawkish Federal Reserve. INR manages to end higher despite broad USD strength as falling oil prices & improving covid numbers offer support.

Bond markets are the cause and effect of Paytm and cryptos

Cheap money is causing excesses in equities and a crypto boom even as bonds face the brunt of inflation. Where will it all end?

Strong jobs report & high inflation makes a strong case for Fed rate hikes

USD posted its biggest weekly gain in almost three months after a surprisingly strong U.S. inflation data, which prompted market participants to advance their bets for a U.S rate hike. UST yield in tandem with USD rose sharply.

US labour shortage is a huge threat to Gsec yields

US CPI at 6% and a huge labour shortage causing sharp rise in wage growth, there is a big threat to Indian inflation expectations that will cause sharp rise in gsec yields.

Will it be rate reversal for next 3 years?

RBI Governor Shaktikanta Das has been given a 3 year extension by the government. In the first 3 years, RBI had to fight a slowing economy and Covid crises and lowered interest rates to record lows. In the next 3 years, will it be a rate reversal?

USD higher ahead of Fed FOMC

The 10-year UST yield fell to 1.56% in a volatile session on Friday as the bond market remained unsettled ahead of next week’s Fed meeting. USD traded higher as the Fed preferred inflation measure (PCE) showed prices continuing to rise faster than its 2% target.

Powell signals bond taper, supports USD

USD declined last week despite a steady rise in bond yields, which normally tends to support the currency . The yield on the benchmark 10-year UST has risen by 10 basis points in the course of the week to 1.67%, on fears that this year’s spike in inflation is likely to last longer than first thought.

G-secs to stay nervous on data

Gsec yields have climbed over the last couple of months and are at one year highs. Hereon, yields will be driven by incoming data that would affect inflation, including commodity prices, wage growth in US and economic growth.

Gsec yields to only rise from hereon

10-year gsec yields closed at one-year highs last week despite CPI inflation printing at 4.35% for September, after staying well over 5% and 6% levels for a while. Markets are factoring higher inflation with economic recovery and less need for protection of yields by RBI

USD eases, tracing lower UST yields

USD traded lower last week tracing lower UST yields despite consumer prices rising by more than expected. INR ended the week lower as India’s trade deficit widened to record levels in September.

Gsec yields to normalise on RBI policy, US wage growth

RBI stopped Gsec purchases in its policy review last week, pushing up yields on government bonds. Gsec yields have been held artificially low by RBI through its bond purchases and market interference and the stopping of G-SAP program will help bond yields normalise to market driven levels.

Weak jobs report unlikely to deter Fed

USD traded higher last week tracing higher UST yields but fell in the later part of the week following an agreement in Washington over the US debt ceiling and amid a huge miss in the US non-farm payroll report. INR ended the week lower as the RBI kept monetary policy unchanged.

Time is perfect for RBI to start raising interest rates

India’s macro is looking good and with economic outlook improving rapidly, RBI can easily start to normalise its ultra-loose monetary policy. If done too late, inflation can rise rapidly endangering economic growth.

USD higher as Fed tightening in Focus

USD ended the week higher as it traced treasury yields amid expectations that the Fed could start tightening monetary policy sooner than its peers as inflation remained stubbornly high. INR ended the week lower due to the soaring crude oil prices fueling global inflation.

Government sticks to its targeted borrowing for fiscal year 2021-22

Union Government of India is scheduled to borrow Rs 5030 billion during H2FY22 which is 41.92% of total gross borrowing for entire fiscal year

USD higher as Fed inches closer to bond taper- Weekly Currency Analysis

USD & UST yields rose last week as the U.S. Federal Reserve hinted at an earlier-than-expected rate hike. INR ended lower amid broad USD strength and as the Asian Development Bank unnerved investors with a warning on Asia’s economic recovery.

Will RBI follow Fed on rate hike guidance?-Weekly Fixed Analysis

The last time Fed talked about taper and rate hikes, in 2013, the repercussions were severe with INR dropping and bond yields spiking. RBI had to take drastic measures to stabilise the market. Will RBI react more proactively now?

USD rises on Fed taper view-Weekly Currency Analysis

USD traded higher last week after US retail sales defied expectations and rebounded in August. INR ended the week marginally higher after RBI sees the inflation trajectory shifting down more favorably than initially anticipated.

G-sec yield curve to factor in rate hikes next year-Weekly Fixed Income Analysis

RBI recently stated that the inflation trajectory is shifting down more favorably than initially anticipated. As supply conditions return to normal and productivity gains the bank expects sustained decline in core inflation. This will allow the RBI to maintain its accommodative stance.

USD higher after hawkish Fed comments-Weekly Currency Analysis

USD posted a weekly gain as market participants reassessed the likelihood of the Federal Reserve tapering bond purchases this year. INR ended lower last week in risk-off trade with worries of slowing growth creep in.

Sentiment improving for long end of the curve G-secs?

The auction of the new 14-year bond maturing in 2035 saw 3x demand for the Rs 100 billion of bonds on offer and the yield cut-off came in bullish at 6.67%. Has the sentiment turned for long-end g-secs that were trading at higher levels for the past many months?

G-sec yields trend down on improving government finances - Weekly Fixed Income Analysis

10-year g-sec yield trended down from highs, as the bond-market looked at the GDP growth, tax collections, exports and equity values as highly favorable factors for improvement in government finances.

USD falls as NFP report disappoints- Weekly Currency Analysis

USD exhibited broad weakness last week after a much weaker than expected U.S. payrolls report that is likely to keep the Federal Reserve at bay in scaling back its massive stimulus measures. INR traded higher last week amid broad USD weakness and as data revealed that the service sector in the Indian economy grew at the fastest pace since the pandemic began.

Should RBI anticipate 2008 crisis all over again?-Weekly Fixed Income Analysis

Fed is going to keep rates down for extended period of time and this is causing asset prices to rise substantially to bubble territory. RBI has plenty to do to manage growth, inflation, capital flows and potential market collapse like in 2008 credit crisis.

USD slips as Fed chair detaches tapering from "the rate liftoff"-Weekly Currency Analysis

USD ended the week lower on Friday after Federal Reserve Chair Jerome Powell detached tapering from "the rate liftoff". INR gained despite rising covid cases.

G-sec auctions see demand on global growth worries-Weekly Fixed Income Analysis

Worries over a third wave of covid 19 brought about risk aversion in markets and bond yields declined marginally on global economic growth tapering off. G-sec auction saw demand after a long while.

USD up amid rising risk aversion-Weekly Currency Analysis

USD trades higher amid worries about widespread coronavirus infections and as fears grow that the Fed will start tapering bond purchases. INR fell after RBI minutes showed continued support to the economy.

RBI QE does not prevent rise in g-sec yields - Weekly Fixed Income Analysis

RBI is now becoming the single largest buyer of government bonds and has bought over Rs 1.5 trillion of bonds till date. However, bond yields have risen as RBI funding government fiscal deficit is seen as inflationary in nature.

USD falls as delta worries shakes economic recovery-Weekly Currency Analysis

USD fell as the concern about the Delta variant is finally catching up to financial assets. INR edged lower as India’s retail inflation cooled in July after pushing above 6% for two consecutive months.

Hawkish Fed & Strong NFP drives USD higher-Weekly Currency Analysis

USD and UST yields rose after hawkish comments made by Fed official Richard Clarida and better-than-expected monthly jobs report. INR edged higher largely boosted by an upbeat domestic equity market and inflows towards initial public offerings.

US wage growth to force RBI’s hand on inflation-Weekly Fixed Income Analysis

US monthly jobs data came in much better than expected and average hourly earnings rose to 4% from 3.7% as employers were forced to hike wages to attract new workers amid a dearth in labor supply. The trend of rising wages is expected to continue and could keep inflation higher for longer.

USD falls on Dovish Fed-Weekly Currency Analysis

USD ended the week lower as U.S. Federal Reserve maintained a dovish stance in its latest policy decision. INR trades marginally lower as rising COVID-19 cases dampened market sentiment and growth outlook.

Unwanted!! Benchmark 5- & 10-year G-secs - Weekly Fixed Income Analysis

Administered pricing of G-secs like small savings rates or even fuel and agri commodities leads to lack of market confidence. RBI needs to let the market determine the yields on benchmark bonds while it goes about setting its policy stance and buying bonds.

Bond markets start to play yield curve spreads -Weekly Fixed Income Anlysis

10-year benchmark bond, 6.10% 2031 bond, yield rose by 3bps to 6.16% while the 6.57% 2033 bond yield came off sharply by 23bps to 6.65%. The market is starting to play yield curve spreads and this will continue going forward.

USD edges higher as ECB turns more dovish-Weekly Currency Analysis

USD ended higher for the second consecutive week after a turbulent few days with currencies turning volatile. INR appreciated on firm equity markets following a rebound in risk sentiments and high foreign fund inflows in the primary market.

G-sec yields drift higher, as inflation stays high-Weekly Fixed Income Analysis

New 10 year government bond, 6.10% 2031 bond, saw yields rising and prices falling, as markets worried about inflation and bond supply.

USD gains on Covid & Inflation Worries

USD gained while UST and other global benchmark bond yields fell last week on a safe haven demand amid rising Covid-19 cases worldwide. INR showed some resilience against the surging USD last week as better than expected retail inflation helped to calm investors.

USD falls after mixed FOMC minutes-Weekly Currency Analysis

USD fell last week amid mixed messages in the FOMC minutes. The benchmark 10-year Treasury yield fell by 7 bps to fresh 4 month lows. INR ended the week marginally higher snapping a 6-weeks losing run despite being under pressure throughout the week amid the release of weak economic data and surging oil prices.

New 6.10% 2031 G-sec- Where will yields go from here?-Weekly Fixed Income Analysis

Will yields rise or fall on the new 10-year benchmark g-sec? All indicators point to higher yields.

G-sec yields spike on change in RBI’s auction methodology

G-sec yields are spiking as bond dealers are wary of being given bonds in auctions at prices they are not comfortable with.

Parts of the G-sec yield curve are cracking-Weekly Fixed Income Analysis

G-sec and SDL yields have moved up sharply from lows in the last one month on market’s fear of inflation and government fiscal deficit. RBI has tried to keep yields optically stable by focusing on benchmark bonds but other parts of the yield curve are cracking.

USD rises on upbeat economic data-Weekly Currency Analysis

USD rose across the board last week. U.S. monthly jobs report indicated that the labor market recovery is on the right track but not picking up so fast so as to prompt a sooner move by the Fed. U.S. 10-year treasury yield fell sharply by 9 bps and is currently at 1.43%. INR fell despite exports & foreign exchange reserves hitting record levels

New fiscal stimulus is bond positive and negative

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.

USD struggles on Fed’s mixed messages

USD fell last week following dovish commentary from Federal Reserve Chair Jerome Powell. INR fell against USD last week as oil prices hit fresh multi-year highs as the demand outlook continued to improve. S&P Global Ratings cut India’s growth forecast for the current fiscal year to 9.5%.

Why is RBI not issuing new 10-year G-sec?-Weekly Fixed Income Analysis

The 10-year g-sec yield is a reference level for pricing all other bonds and even loans. Global investors base their research and investment decisions based on the 10-year g-sec yield movement.

USD rises, INR falls, as Fed points to rate hikes in 2023

USD jumped last week against all of the major world currencies and the US 10 year benchmark bond yields posted their biggest one-day rise in three months on Wednesday. The Fed pointed to an improved economic outlook as the reason for accelerating the path to monetary policy normalization.

Lack of bond market volatility is worrying-Weekly Fixed Income Analysis

High CPI inflation and Fed signalling rate hikes are clearly bond price negative, but bond markets saw hardly any price movement in G-secs. Volatility is essential for markets and this lack of volatility is a big worry

Inflation bug bites Fed, is RBI next?

US inflation surge in May is prompting the Fed to raise market expectations of rate hikes. However, even with high inflation, rate hikes will start only in 2023. In the meanwhile, Fed will start to taper bond purchases soon before starting to raise rates.

Taper tantrum and inflation could hurt RBI policy - Weekly Fixed Income Analysis

RBI is projecting CPI inflation at 5.1% for this year even as global commodity prices spike, driving US core CPI inflation to 3 decades high.

USD rises as market look to upcoming FOMC-Weekly Currency Market Analysis

Stronger-than-expected consumer confidence boosts demand for USD ahead of next week’s Federal Reserve monetary policy announcement. U.S. consumer price index jumping 5.0% year-on-year in May, the sharpest rise in 13 years.

US economic data largely supports the USD-Weekly Currency Analysis

USD traded higher against major world currencies after the release of strong economic data reinforcing the signs that the world's largest economy was on its way to recovery from the COVID-19 pandemic.

30-year G-sec yield tells story of impending inflation spike -Weekly Fixed Income Analysis

The spread of the 30 year bond yield over the 10 year bond yield has risen sharply over the last one year indicating that the market expects inflation to overshoot RBI’s estimates by a wide margin.

USD rises on Biden spending reports-Weekly Currency Analysis

USD exhibited high volatility last week but managed to end the week higher, finding support from comments suggesting the Federal Reserve will soon have to discuss tapering its massive bond-buying program.

RBI 10-year G-sec 6% target keeps SDL spreads high-Weekly Fixed Income Analysis

SDL spreads over the government bond has risen from lows of below 50bps to over 80bps in the last few months indicating stickiness of yields at higher levels.

Government, RBI bond ties down the market-Weekly Fixed Income Analysis

RBI dividend, GSAP, operation twist and bond switches have effectively pegged bond yields, leaving the bond market to almost stop trading.

USD declines even as Fed talks of taper -Weekly Currency Analysis

USD & UST yields fall even as market participants wrestle with the prospect of rising inflation.

USD & UST yields rise amid inflation surprise-Weekly Currency Analysis

USD & UST yields rose sharply after the market reacted to the data which revealed that US inflation surged in April. INR ended the week lower against USD as retail inflation for April weakened to 4.29%.

RBI should do a BOJ and fix a yield for the 10year G-sec-Weekly Fixed Income Analysis

RBI rejected all bids for the 10year G-sec in last week’s bond auction, prompting market to ask “what is the right yield according to RBI?”

USD falls on NFP shocker

USD fell to its lowest level in more than two months on Friday after U.S. jobs data for April came in well below expectations, dampening hopes that a roaring economic recovery would spur higher rates.

Lockdowns overturn inflation, interest rates dynamics-Weekly Fixed Income Analysis

RBI will keep rates low and liquidity high for covid relief to the economy even as inflation spikes. Riskier fixed-income products will find flavor.

USD trades higher despite dovish monetary policy, on US economic recovery.

Month-end flows drove the USD higher against all of the major currencies despite the Federal Reserve’s insistence that more improvements are needed in inflation and employment before balance sheet changes can be considered.

Bond yields to stay directionless on inflation and covid surge

Surging commodity prices is being felt in the real economy but RBI is holding bond yields down to support the covid hit economy.

INR may come under fresh pressure as RBI tries to contain bond yields -Weekly Currency

INR depreciated by 0.75% against the USD to touch multi month lows. Factors like surge in covid cases, rise in inflation and rise in oil prices have driven the INR to depreciate. Fear of economic disruption due to lockdown is looming on the back of second wave of corona pandemic.

INR value can plunge on RBI Gsec auction behaviour

RBI has been rejecting bids in government bond auction and the market has no clue on why it is rejecting the bids. Market confusion can cause distortions in bond pricing, which will hurt investors.

Stress between RBI & bond market visible in auction

RBI rejected all bids for the Rs 140 billion, 5.85% 2030 bond auction, which showed the disconnect between RBI and bond market. Heavy auction supply is clearly hurting the bond market.

INR – From Strength to Weakness, is the tide turning?

INR, which was on a very strong footing last year with heavy capital flows, low CAD, and broad USD weakness is showing stress on inflation, fiscal deficit, and surging covid cases. Will this be a long-term trend?

INR on weaker footing on RBI and Covid

USD weakened as Fed stuck to its accommodative stance while acknowledging signs that the economic recovery in the US is picking up. INR extends losses on rising covid cases & dovish RBI.

RBI G-SAP – Will inflation shoot up?

RBI announced a Gsec acquisition program, G-SAP, for Rs 1 trillion for the current financial year quarter to help the market absorb government borrowing. This can lead to high inflation, hurting bond investors down the line.

Union Government to Borrow Rs 7.24 trillion during H1FY22

In the first half of fiscal year 2021-22, Union Government will borrow Rs 7240 billion, which is 60.03% of the total budgeted borrowing of Rs 12000 billion for full fiscal year.

Borrowing, Covid surge and inflation to weigh on RBI April 2021 policy meet

RBI monetary policy meeting in the 1st week of April 2021 gains significance as it has to manage a huge government borrowing and also temper fast rising inflation expectations even as covid cases are surging. Will RBI hike rates soon?

USD supported by Biden’s spending plan

USD strengthened against major currencies as market participants bet on fiscal stimulus and aggressive vaccinations which will help the U.S. to grow faster than other economies. INR is under pressure as the covid situation continues to deteriorate.

USD supported by upbeat economic outlook from Powell & Yellen

USD strengthened against all major currencies on economic recovery optimism by Powell & Yellen. President Biden boosted expectations of a strong US recovery as he pledges to accelerate the vaccine program.

This chart points to rising G-sec yields in FY22

10-year G-sec yields will rise sharply in FY 22 starting April 2021, as bond markets factor in high inflationary pressures on the back of very high levels of fiscal deficit.

USD & UST Yields jump post-Fed announcement

USD edged higher last week largely helped by rising U.S. Treasury yields even after the Federal Reserve reiterated that it was in no hurry to raise interest rates while predicting strong growth in the world’s largest economy. Reading time 4 minutes.

Why retailisation of G-secs is important to absorb bond supply-Weekly fixed income

High government borrowing can cut private sector access to capital making India’s vision of a USD 5 trillion economy not achievable. Individual savings can help absorb the borrowing through realisation of the Gsec market. Reading time- 3 minutes

Fed FOMC will set the tone for USD & US Treasury Yields

USD traded lower as inflation missed expectations and jobless claims dropped to the lowest level since the pandemic started. Attention has now turned to this week’s Fed FOMC monetary policy announcement. Reading time 4 minutes.

RBI rate hike in April is the only balm to calm nervous bond markets-Weekly Fixed Income

Rising inflation expectations, spiking UST yields and high government borrowing have taken up bond yields by 40bps to 80bps across the curve. A rate hike in April will send positive signals to the market that RBI is staying on top of inflation. Reading time 4 min

USD & US Treasury Yields surge after strong jobs report

US government bond yields have been rising significantly due to high inflation expectations and this is strengthening the USD on the back of capital moving back to US bonds from other foreign currency assets. Reading time 6 minutes.

Oversupply of long bonds in inflationary environment will hurt bond investors

Learn how government burdens future taxpayers even as it punishes current bond investors. Reading time 4 minutes

USD Gains as Inflation Fears Push Yields Higher

USD climbed last week, lifted by a sharp rise in U.S. Treasury yields, while riskier currencies were hit hard amid fears that central banks will have to tighten sooner than previously expected. The yield on the US 10 year treasury closed at 1.41%, its highest level since the start of the pandemic.

USD Gains as Inflation Fears Push Yields Higher

USD climbed last week, lifted by a sharp rise in U.S. Treasury yields, while riskier currencies were hit hard amid fears that central banks will have to tighten sooner than previously expected. The yield on the US 10 year treasury closed at 1.41%, its highest level since the start of the pandemic.

10yr G-sec yield trending to 7% in H1FY22 is a strong possibility

Bond markets are increasingly worried about the inflationary effects of fiscal pump-priming by governments and ultra-loose monetary policy by central banks across the globe. Normally, governments want to borrow and spend and are not worried about inflation while central banks act against government-driven inflation. However, due to the covid pandemic, central banks are encouraging governments to borrow and spend and also want inflation to rise.

Rising UST yields can be bad news for emerging markets

US 10 year Treasury yield rose to the highest level in a year this week to 1.34% amid concerns about the possibility of higher inflation as investors bet that the U.S. economy will gather strength in the coming months. Additionally, the market participants continue to assess the full impact of Joe Biden’s USD 1.9-trillion stimulus plan.

Demand is just not there for G-sec auctions even as SDL yields spike

The G-sec bond auction for Rs 310 billion held last week saw very low demand for bonds and RBI had to devolve more than Rs 200 billion to the bond auction underwriters, close to 70% of the total auction was given to the underwriters. RBI also gave high commission to the underwriters, much more than what they normally pay, in order for the auction to be underwritten.

Revised Government Borrowing for Feb-March 2021, total gross borrowing stands at Rs 13.9 trillion during FY21

As per Union Budget-FY22 announcement, Government of India will borrow Rs 2160 billion during Feb & March 2021. Total gross market borrowing stood at Rs 13900 billion during FY21.

USD weakens across the board on U.S. fiscal stimulus expectation

USD came under pressure last week as market participants expect that the massive US fiscal stimulus is on its way shortly and amid the release of weak inflation data. The House of Democrats released the first draft text for the legislation that will make up the covid stimulus bill, taking the USD 1.9 trillion package a step closer to approval.

Core inflation at 5.7% makes market to dislike bonds

CPI inflation for January 2021 came in at 4.06% while core CPI, which is ex food and fuel, came in at 5.7%. Core CPI is showing broad based inflationary pressures, driven by high fuel and commodity prices and also supply constraints due to high demand for goods and services on the back of government spending. Inflationary pressures are on the higher side and this can hurt bond investors if yields stay low for a longer period of time. CPI inflation for January 2021 came in at 4.06% while core CPI, which is ex food and fuel, came in at 5.7%. Core CPI is showing broad based inflationary pressures, driven by high fuel and commodity prices and also supply constraints due to high demand for goods and services on the back of government spending. Inflationary pressures are on the higher side and this can hurt bond investors if yields stay low for a longer period of time.

INR shrugs off high fiscal deficit and CRR rate hike to trend higher

INR shrugged off 2 major negative factors to close last week on a stronger note. The government showed a high fiscal deficit in its budget for fiscal 2021-22 while the RBI hiked the CRR of banks to sterilize excess liquidity. Markets focused on the growth optimism on the Indian economy, as it bought into the INR.

RBI is making the bond markets to stop trading-Weekly fixed income report

RBI hiked the CRR by 1% in its policy review last week, as it sought to slowly normalize policy in the face of higher inflation. Growth prospects are brighter given high government spending and this is signal for inflation to rise. The government forecast a fiscal deficit of 6.8% of GDP for FY22 while it was at a whopping 9.5% of GDP for FY 21.

Union Budget 2021-22, Is it INR Positive or Negative

The Economic Survey 2021 has forecast India real GDP growth at 10% to 11% and nominal GDP growth at 15%, largely due to base effect on the back of negative grpwth seen in fiscal 2020-21 due to Covid pandemic. Trend grpwth after fiscal 2021-22 js seen at 6.5% to 7%. Inflation too is expected at over 6% for fiscal 2021-22. Given that India GDP growth is seen at higher levels while US Fed and ECB keep rates at lows and pump in liquidity, capital flows can be strong and drive up the INR in the near term. However, the cost of growth will drive the INR value over the longer term as high fiscal deficit can lead to higher inflation that might drag sustainability of economic growth.

Bond yields poised to surge unless RBI and Government allay fears of supply – Union Budget 2021-22

The bond market can expect a minimum of Rs 7 trillion of net central government borrowing and Rs 7 trillion of state government borrowing for the fiscal year 2021-22. The Union Budget for 2021-22 is expected to be inflationary, as the government spends to push up GDP growth to double digit levels. Assuming that fiscal deficit of center and states is pegged at 5% and 4% of GDP respectively for fiscal 2021-22.

Yellen, Powell Tango to Hit USD Hard

Fed meeting is scheduled this week, which will be watched keenly. Fed dovish stance will strengthen USD, but the gains are capped on the prospect of more stimulus and larger fiscal deficits.

RBI creating a moral hazard will lead to a blowout as risk gets mispriced

In the last government bond auction conducted on the 22nd of January 2021, the bond market clearly showed its reluctance to bid for bonds at current levels of yields. The 5-year benchmark bond saw the RBI devolving the full auction on to the underwriters, as bids were well above 5.3% levels, almost 40bps higher from lows seen a few months ago. RBI also did not accept any bids for the 10-year benchmark bond, as the market bid at higher levels.

Will USD continue to slide or is the slide over?

USD saw some stability at lower levels on optimism over the US economy on the back of a new large stimulus package. However, USD has been on a continuous slide over the last 8 months on the back of Fed printing money to nullify the covid impact on markets and economy.

Steepening UST Curve, Sensex at 50k, suggest RBI rate hike in Q1FY22

UST yield curve has steepened by around 60 bps over the last few months, with 10-year treasury yields moving by almost 70bps from lows of 0.4% to 1.1% seen in 2020 while the short end of the curve is around .10% levels. The yield curve is showing classical steepening movement on the back of inflation expectations even as the Fed fuels inflation by keeping rates at 0%.

US stimulus expectations drives currency markets

USD was pushed higher against major peers last week following a Democratic win in the Senate elections in the state of Georgia. For the first time in a decade, the Democrats will control the house of representatives, the Senate, and the Presidency in a so-called Blue wave.

777 risk to bond yields is very high

Bond yields are treading shallow waters and can become unsustainable at these levels despite RBI protection. The 777 factor will come into play and push up the 10 year government bond yield sharply from current levels of 5.85%. Further the fact that 10 year UST yields crossed 1% levels this year on expected large scale US stimulus will further pressure the 10 year government bond yield.

INR ends 2020 on a confident note as FIIs pump in USD in December on US Stimulus

USD lost ground as US President Donald Trump signed the second stimulus package to support an economy damaged by the pandemic. The relief package is supporting risk assets and is putting pressure on the USD, which used to act as a safe haven during the crisis.

When the over Rs 60 trillion Gsec market turns illiquid, it is time to worry a lot

RBI by significantly using its muscle power in the government bond market has sidelined the liquidity providers in the market. Bond traders have almost stopped trading as weekly heavy supply of bonds from the government and states and RBI protecting the yield curve have left them with no appetite to make markets.

New Mutant Strain of COVID-19 Keeps USD steady at lower levels

USD gained marginally from lows last week as investors turned to the safe-haven asset as many countries tightened restrictive measures against the new mutant COVID-19 virus. However, optimism over COVID-19 vaccines being effective against the new mutant strain of COVID-19 found in the UK boosted the market sentiment.

Same Story Repeats, RBI flexes muscles to protect 10-year bond yield-Weekly Fixed Income Report

RBI did not accept any bids in the Rs 90 billion 10-year benchmark bond, the 5.85% 2030 bond, auction held last week. The market bid at yields much higher than the closing levels of 5.93% on the bond and RBI did not want to send signals that it was fine with yield on the bond trending higher.

Fed Money Printing, How will it affect the 5.85% 2030 Gsec yield movement?

The 5.85% 2030 bond will see a period of uneasy calm before there is a sudden sharp rise in yields, most probably before budget in February 2021. High government spending coupled with huge liquidity flows will raise inflation expectations sharply and this will prompt markets to reset yields to higher levels.

USD Trades Lower on Risk Outflows

The growing prospect of a stimulus deal in the U.S., Fed dovish stance and a Brexit agreement in the UK are driving investors out of safe-have currencies like the USD and Japanese Yen.

USD falls against INR but rises versus Major Peers as Congress Remains at an Impasse on COVID Relief

Safe-haven USD fell against the INR, but it was trading higher versus its major peers on fading hopes for Brexit and U.S. stimulus deals. U.S. lawmakers are expected to pass a one-week spending bill to fund the government, but the House has indicated that anything beyond that would require agreement to a broader fiscal stimulus plan. Unfortunately, little progress has been made and Senate Republicans say they do not have majority support for the current bill. If agreements cannot be reached in the next week or two, there could be a sharp rise in volatility in currency markets.

RBI micromanaging bond yields will hurt long term investors

RBI announced an operation twist for Rs 200 billion as soon as it saw the market bidding at higher yields in the auction of the new 10 year benchmark bond, the 5.85% 2030 bond. The bond yield cut off was at 5.90%, 5bps higher than the last week cut off at 5.85%. Operation twist is where the RBI sells short term bonds and purchases longer term bonds, which helps keep down the 10 year benchmark bond yield.

RBI will have to let go of INR as capital flows surge

RBI in its policy review last week said that surging capital flows has led to heavy USD purchases to prevent a sharp appreciation of the INR. USD purchases have led to huge liquidity infusion in the system. Fx reserves are at record highs and RBI fx intervention has resulted in addition of over Rs 2 trillion of liquidity.

Higher inflation is key to containing fiscal deficit going forward, what happens to bond yields then?

RBI is maintaining an ultra-accommodative monetary policy to negate the effects of covid 19 pandemic that has led to 2 consecutive quarters of negative GDP growth in fiscal 2020-21. While growth collapsed, inflation has risen sharply to well over 7% levels, far above the RBI target of 4%. The forecast for inflation is around 5% in the 1st half of fiscal 2021-22 while growth will rebound considerably, largely on base effect. RBI is willing to live with real interest rates of negative 4% for growth to accelerate.

USD Weakens as Stimulus and Vaccine Optimism Weighs

Optimism over a rapid rollout of COVID-19 vaccines, which may result in faster economic recovery across the globe, underpinned the sentiment for emerging-market assets. Owing to this, the safe-haven USD weakened globally and, in turn, supported the Indian currency last week.

Yield on New 10yr Gsec at 5.85% indicates market worry on growth, inflation and fiscal deficit dynamics

The government issued a new 10 year bond, which saw the cut off yield at 5.85%, higher than the 5.77% cut off yield seen in the auction of the previous 10 year benchmark bond, a couple of months ago. The yield of 5.85% is still low as the last time government bond yields went below 6% was in 2008-09 during the global financial crisis. However, the market is showing reluctance to bring down the bond yield despite RBI’s firm commitment to keep down the long bond yields through OMO purchases of around Rs 1.4 trillion including operation twists and SDL purchases.

Vaccine announcement increases risk appetite in currencies

USD slipped against major world currencies last week, while riskier currencies were trading higher, buoyed by improved risk appetite following COVID-19 vaccine progress and Joe Biden's U.S. election victory. The surge in COVID-19 cases across the US and Congress remains deadlocked over an additional rescue bill h kept the USD from weakening too fast.

Vaccine will sharply push up bond yields

The success of covid vaccine in trials has given hopes for markets for an economic recovery with equity markets in India and globally touching record highs. The vaccines are expected to be available from early 2021.

Bond Positive Data Drives Down Bond Yields

he first week of the new fiscal year saw bond markets stutter at first and then regain composure on the back of bond positive data.

Bond Market Flattens Yield Curve as RBI Grapples with Excess Liquidity

RBI came out with an OMO (Open Market Operation) sale auction announcement when the benchmark ten year bond, the 8.40% 2024 bond yield touched two months lows of 8.40%.

Happy Diwali for Bond Market

The bond market is having its first “Happy Diwali” in almost six years given that sentiments have been bearish on yields since beginning of 2009.

9.23% 2043 Gsec has become the Flavor of the Day for the Bond Market

The benchmark long bond, the 9.23% 2043 bond, saw yields fall by 18bps week on week to close at levels of 8.36%.

Weak Japanese Data makes Yen an Attractive Funding Currency

Japanese Yen depreciated by 0.68% on weekly basis against the USD as the country posted weak economic data.

Profit taking on USD shorts to be temporary

Markets took profits on shorts as USD had fallen sharply in anticipation of fresh stimulus by the new US president. This will be temporary given that Fed will pump in money to support the huge fiscal spending by the US government on resurgence of corona virus.

Government Diwali Stimulus plus Inflation to take 10-year G-sec yields higher -Weekly Fixed Income Analysis

The government a fiscal stimulus package of USD 20 billion as a Diwali gift to the economy in addition to an incentive scheme worth around USD 800 million to revive the covid hit economic growth. The fiscal package comes in the wake of severe stress on government finances as seen by the shortfall in revenues.

Government Spending, OMO Sales, UST Yield Rise Hurt Bond Market Sentiments

Government bond yields rose last week on the back of multiple issues hurting bond market sentiments.

Biden win- RBI will have to start issuing MSS bonds to suck out liquidity from fx flows

Joe Biden winning the US Presidential elections will weaken the USD as the government will float a fresh and huge fiscal package to shore up the covid hit US economy. Fed has indicated continued record low rates and bond purchases, adding huge amounts of USD liquidity into the system.

Joe Biden win to help INR strengthen

U.S. election results, Joe Biden presidency checked by a Republican-controlled Senate will lead to USD weakness going ahead. The Democrat is seen pursuing policies conducive to trade and the environment, while a divided Congress may stop him from firing a fiscal bazooka. That means more exports and faster growth for developing nations, as well as a boost for riskier assets from a more accommodative Federal Reserve.

OMOs Cap Bond Yields Spike but Yields Will Stay High

Government bond yields fell marginally last week on the back of RBI OMO purchase auction announcement.

10-year Gsec yield is likely to rise on Joe Biden's win

USA Elections 2020 results have not been announced yet. Democratic candidate Joe Biden is leading Republican nominee, President Donald Trump, in terms of electoral votes. Markets are factoring in Biden's Win in USA Election 2020 as he's inching towards the majority of 270 mark.

INR will gain on Joe Biden's win

INR fell against USD across the week in risk off trading. Rising COVID cases across the globe and no US fiscal stimulus have unnerved investors prompting a move out of riskier assets and currencies, such as the INR towards safe havens such as the USD. On the domestic front, expectation of another stimulus package is doing round and that could also weigh on the INR. Market participants are waiting for more clarity on the same and that could keep the volatility in check.

RBI Support to Government Borrowing May not Prevent Huge Market Volatility

The government, in a surprise announcement, increased the gross borrowing for this fiscal year to Rs 12 trillion from Rs 7.80 trillion budgeted and the 1st half borrowing was increased to Rs 6 trillion from Rs 4.88 trillion.

USD weakens on approaching US elections

INR ended the week lower against USD last week despite improvement in the global risk sentiment as RBI bought USD to prevent sharp appreciation of INR. The RBI has stood in the way of INR appreciation for the past couple of months and absorbed most USD inflows of foreign investments into Indian companies and assets. Since the beginning of September, the RBI has added USD 13.69 billion to its foreign exchange reserves, taking it to a record high of USD 555.12 billion as on Oct 16. INR depreciated by 0.35% against the USD last week and depreciated by 1.43% against the euro.

SDLs can see higher market liquidity, as RBI purchases SDLs

RBI first ever SDL OMO purchase auction of Rs 100 billion saw total amount offered by participants at Rs 154.75 billion, out which Rs 100 billion was accepted. Highest cut off yield stood at 6.68% for 7.95% JAMMU KASHMIR SDL 2030.

When supply is the Only constant, RBI carry makes money for traders temporarily

The bond market is now absorbing weekly supply, upwards of Rs 300 billion and has been absorbing weekly supply of over Rs 400 billion in the last 6 months. The supply inundation has led to a steep yield curve with the spread of the 1 year tbill to the 10 year bond at levels of over 250bps. SDLs too have seen spreads rise to 85bps from levels of around 60bps despite RBI announcing SDL OMO purchases for the first time ever.

U.S. Stimulus Impasse and Rising COVID-19 Cases Drives USD Higher.

INR ended the week lower against USD last week after IMF forecast that the Indian economy would contract by -10.3% this year after being severely hit by the coronavirus lockdown. However, the IMF was upbeat regarding its recovery saying that India was well placed to start recovering from the crisis with the support from fiscal and monetary policy.

Government Of India Increases Market Borrowing For H2FY21

Government of India revised borrowing for Oct 2020- March 2021.To meet GST Compensation Cess shortfall of Rs 1.1 trillion, the Government of India borrowing calendar is extended. For the H2FY21 (from 19th October 2020 to 12th March 2021)

CPI Inflation at 7.34%, Will Artificial Bond Yields Lead to Macro Economic Instability

Inflation is much higher than RBI managed interest rates and this can lead to macro economic instability as real negative rates hurts private savings and also leads to currency depreciation that will cause outflows of capital. Low rates at times of rising inflation will lead to excessive debt in the economy as government and corporates get cheap money and this can lead to inflation trending higher.

USD Trades Lower Amid High Hopes for U.S. Stimulus Package

INR ended the week marginally higher against USD last week amid improvement in the appetite for riskier assets across the globe and due to persistent foreign fund inflows for investments into Indian entities. However, the gain remained capped as RBI intervened in the currency market to avoid sharp INR appreciation. INR appreciated by 0.01% against the USD last week and depreciated by 0.65% against the euro.

RBI Takes Over the Bond Market, Price Discovery is Hampered

Bond markets are now held captive by the RBI, as they cannot express their views on macro economic policies and expectations on inflation. In the short term, bond yields will stay lower, as RBI has taken out the market’s ability to short but in the longer term, the repercussions will be catastrophic if the economy does not recover in a sustained manner.

Short Term Gain, Long Term Pain for Bond Markets on Understated Government Borrowing and on RBI Policy

The government kept to its budgeted borrowing plan for fiscal 2020-21, as it released the 2nd half borrowing program. The borrowing program size was increased in April 2020 on COVID led lockdown. Bond markets were nervous on higher than expected borrowing for the 2nd half but were provided relief by the government.

INR Finding Strength from Current Account Surplus, US Politics

INR ended the week higher against USD last week as the demand was largely buoyed by foreign investments into a slew of Indian companies. INR appreciated by 0.64% against the USD last week and marginally depreciated by 0.01% against the euro.

RBI Has to Have a Clear Plan to Handle Market Fatigue for Bonds

RBI sent out two different signals to the bond market last week, confusing traders who were anyway nervous on the 2nd half supply of bonds from the government. In the OMO bond purchase auction, RBI rejected all bids and traders took this as a signal that the central bank did not want to accept bids at lower than market yields.

US Stimulus Package Uncertainty Drives USD Higher

INR traded lower against the USD last week as the market sentiment weakens amid concerns that a surge in COVID-19 cases may hamper economic recovery. However, INR garnered support from likely foreign fund inflows for initial public offerings of three Indian companies that were open for subscription for foreign investors.

Appetite for Government Bonds at Current Levels is Just Not There

RBI devolved the full auction of the Rs 180 billion benchmark 10 year bond, the 5.77% 2030 bond, on to the Primary Dealers indicating its preference for lower yield cut off in the auction. The devolvement was at levels of 6.02%. This is the second consecutive devolvement for the full auction of Rs 180 billion of the 5.77% 2030 bond, the devolvement was at yields of 6.14% on the 28th of August.

Inflation, Fiscal Mess, Operation Twist, Auction Devolvement add to Market Fears

RBI August 2020 policy minutes suggest hawkishness over inflation and possibility of no more rate cuts going forward. Central and state government finances are in a huge fiscal mess and borrowings are set to increase from already high levels. Normally inflation plus heavy bond supply will push up yields sharply to levels where the market is comfortable in absorbing the supply.

RBI Keeps a Lid on Yields, for Now

RBI, sensing fatigue in the market for government bonds, conducted an operation twist for total purchase and sale of bonds of Rs 200 billion. 10-year benchmark bond yield fell by 5bps after rising by almost 15bps from lows on the back of the RBI operation twist.

Inflation, Fiscal Mess, Operation Twist, Auction Devolvement add to Market Fears

RBI August 2020 policy minutes suggest hawkishness over inflation and possibility of no more rate cuts going forward. Central and state government finances are in a huge fiscal mess and borrowings are set to increase from already high levels.

RBI is Intent on Keeping Down Yields, Shackling Market Shorting Intentions

In normal times, high government bond supply and inflation trending at higher than RBI target levels would push up bond yields, as markets would increasing the risk premium on bonds. However, given the pandemic that has led to a steep fall in GDP for the 1st quarter of fiscal 2020-21, RBI is intent on supporting government borrowings at low yields and when markets took up yields by 40bps post release of hawkish RBI August policy minutes, the central bank came out with supportive measures and a strong statement on keeping down yields.

RBI is Intent on Keeping Down Yields, Shackling Market Shorting Intentions

In normal times, high government bond supply and inflation trending at higher than RBI target levels would push up bond yields, as markets would increasing the risk premium on bonds. However, given the pandemic that has led to a steep fall in GDP for the 1st quarter of fiscal 2020-21, RBI is intent on supporting government borrowings at low yields and when markets took up yields by 40bps post-release of hawkish RBI August policy minutes, the central bank came out with supportive measures and a strong statement on keeping down yields.

Bond Markets to Turn Long Term Bearish

RBI governor came out with worried statements on market behavior and MPC minutes showed high worries on inflation by members. Given the continued high supply of government bonds and SDLs and with switches that increases supply of long end paper, RBI worries on inflation and markets hit bond yields hard. There is nothing to look forward to for traders, as supply and high inflation rules at present.

Bond Market is Testing RBI’s Resolve to Protect Bond Yields

RBI devolved around 20% of the new 10 year bond, the 5.77% 2030 bond, on to the primary dealers, indicating its unwillingness to chase the tail. The market was spooked by inflation for July printing at close to 7% levels and cut off yield for the 5.77% 2030 bond in the auction was 5.96%, almost 20bps higher than the yield at which the bond was first auctioned in end July.

RBI Is Stifling Bond Trader

RBI kept rates at record lows in its policy review last week and pledged high liquidity and continued accommodative policy given the forecast of negative GDP growth this year. The central bank has kept the door open for more rate cuts. The lack of rate cuts pushed up bond yields marginally across the curve.

RBI to Hold Rates, New 10 year G-sec to Stay Ranged

RBI policy this week will see no changes in monetary policy given that markets have largely been stable since its June policy. The government issued a new 10 year bond, which saw the auction cut off at 5.77% not very far down from the old 10 year bond yield, the 5.79% 2030 bond that was trading at levels of 5.80%.

RBI will have to dig deep to keep Financial System Stable

The COVID 19 lockdown continued in July across states, placing a question mark on the resumption of business activity in the country. The first few results for the 1st quarter of FY 21 does not look promising with major industry players in the infrastructure, automobile, and other industrial sectors reporting degrowth in the quarter with no optimism on guidance. Agri and to some extent pharma and FMCG sectors have shown traction while the IT sector has shown some sort of stability but no promising outlook on growth.

When New and Old 10yr Spreads Flatten, Bull Widening is the Next Move

The spread differential between the new 10 year bond, the 5.79% 2030 bond and the old 10 year bond the 6.45% 2029 bond is at just 9bps. The spread has fallen from over 20bps since the issuance of the new bond. The sharp fall in spread indicates that the market is bullish and is willing to compress the spread for extra yield.

Steep 5*10 Spread is an Opportunity and a Threat

RBI has been aggressively buying USD to prevent an INR appreciation and this is driving down yields across the yield curve. However, short end yields are down sharply with 5*10 segment of the curve spread at 92bps indicating the liquidity effect of fx purchases. RBI has bought USD 35 billion of fx, April to date, and has added Rs 2.2 trillion of liquidity into the system.

RBI Keeps a Lid on Yields, for Now

RBI, sensing fatigue in the market for government bonds, conducted an operation twist for total purchase and sale of bonds of Rs 200 billion. 10-year benchmark bond yield fell by 5bps after rising by almost 15bps from lows on the back of the RBI operation twist.

Rising Fuel Prices, Labour Shortage, Import Bans to Push Up Inflation

Lower global crude oil prices have had an opposite effect on retail fuel prices, with the prices rising by more than 12% over the last one month. The government desperately requires revenues given the economic slowdown on lockdown and is targeting duties from fuel as a source of revenue.

G-Sec Yields to Tussle with IIP Drop, High Food Inflation

The sharp contraction in IIP coupled with high food inflation will keep government bond yields ranged with a marginal upward bias.

Fed Gloomy Forecast is Negative for USD

Fed’s gloomy forecast on US economy will weigh on the USD in the longer term as rates stay at 0% and the central banks prints endless amount of currency.

Steepening UST Curve Drives Risk Appetite in High Yield Currencies and Bonds

Global currencies traded sharply higher on Friday following shockingly strong U.S. labor market numbers.

G-sec Yields May Have Hit the Floor

A steepening UST yield curve drove risk appetite higher in global markets, pulling up risk assets.

INR Gains on Foreign Fund Flows

INR ended the week higher against the USD last week, largely on the anticipation of foreign fund inflows and amid broad weakness in the USD.

RBI OMO Awaited as Nominal GDP Growth Falls

RBI delivered on rate cuts with the Repo rate at record low levels of 4% and Reverse Repo rate at 3.35%.

Global Fx Market to Remain Volatile as U.S.-China Takes Centre-Stage

INR ended the week lower last week as RBI Governor Shaktikanta Das, in an out-of-schedule monetary policy address announced that the Monetary Policy Committee decided to lower the repo rate by 40 basis points to an all-time low of 4.00% to combat economic risks linked to the COVID-19 pandemic.

Yield Curve Compresses on Rate Cuts

The longer end of the curve compressed sharply with respect to the new 10 year benchmark bond, the 5.79% 2030 bond as markets played for flattening of the curve

USD Trades Higher After Fed Powell Rules Out Negative Rates

INR ended the week marginally lower against USD as market participants were worried about the impact of the coronavirus pandemic on India’s macroeconomic fundamentals after the Centre said it will have to borrow an additional Rs 4.20 trillion in 2020-21.

Bond Markets Largely Ignoring Supply, Playing for Curve Flattening

Bond markets are undaunted by supply and yields have trended down from highs despite supply announcements by the government.

Forex Market Remains Volatile Amid Changing Market Risk Sentiment

INR ended the week lower against USD as risk appetite across the globe was weighed down by lingering tensions between the US and China.

USD to Weaken on Fresh Trade Wars

INR ended the week higher against USD on optimism over the progress in a drug trial for the treatment of COVID-19 and also over the expectation of re-opening of several economies that had come to a halt due to the coronavirus pandemic.

Monetization of Fiscal Deficit, Good or Bad?

The government is looking at further measures to support the economy that has suffered due to the lockdown, and the total bailout and stimulus coupled with lack of tax collection and other revenues could potentially double the fiscal deficit from targeted 3.5% of GDP.

Changing Market Sentiments Keep Global Currencies On Edge

INR ended the week marginally lower against USD despite hitting its new record low level of Rs 76.92 on Wednesday.

Low Bond Market Participation is Worrying RBI

RBI announced an operation twist, selling 2020-21 maturity bonds and buying bonds maturing in 2026,28,29,30.

Rate Cut Expectations to Tussle with Extremely Weak Government Finances

RBI in an unscheduled policy announcement cut the reverse repo rate by 25bps, widening the LAF repo-reverse repo corridor to 65bps in order to discourage banks to park excess liquidity with the RBI.

INR Touches Fresh Record Low but Rallies from Lows

INR on Thursday hit a new record low level of Rs 76.8675 against the USD on deepening concerns that the coronavirus pandemic could lead to a global economic recession, which weakens the market risk sentiment.

Every Bond Auction is a Challenge for RBI

The first government bond auction for the fiscal year 2020-21 held last week saw the auction go through without the need for RBI to devolve the auction on underwriters.

INR can Benefit from Fed Buying Junk Bonds

The US Fed buying junk bonds in its latest USD 2.3 trillion program can unleash a flight of USD, as investors worry about the money thrown into the system.

Bond Markets Shiver Despite RBI Policy

10 year benchmark bond, the 6.45% 2029 bond, saw volatile trading last week, falling by 30bps then rising from lows by 14bps. Bond markets got a whiff of impending rate cuts and took down yields from highs and once RBI announced its rate cuts on Friday, the markets took profits.

Volatile USD Turns Currency Markets Haywire

INR gained against the USD after touching record low levels of Rs 76.29 on Monday. The gain came after the USD turned volatile against majors, shedding its gains on record money printing by the Fed.

RBI Commences QE, but Government Finances Worry Remains

RBI, in line with Fed, ECB, BOE, BOJ and other global central banks has commenced bond-buying through OMO purchase auctions to infuse liquidity into the system and also to try and keep surging costs of corporate borrowing down with lower government bond yields. RBI conducted Rs 100 billion OMO purchase auction last week and will be conducting Rs 300 billion of OMO auctions next week.

USD Shortage Keeps INR & other World Currencies Under Pressure

The USD is the world’s reserve currency and in times of market crisis as seen in 2020 due to the coronavirus and in 2008 when a credit bubble burst, there is excess demand for USD in relation to supply

Bond Market to Position for Rate Cuts, Liquidity, Borrowing and INR

The impact of corona virus on the economy will prompt RBI to cut rates by at least 50bps to record lows. Bond markets are factoring in steep rate cuts with the 5 year OIS yield trading at 4.77%.

Plunging UST,Oil Price Cut and Covid-19 to weigh on INR

INR depreciated sharply by 2.17% against the USD and touched a record low of Rs 74.08, as FIIs sold equities and bonds for USD 1.6 billion and USD 0.5 billion respectively last week.

UST at Record Lows Drives Down INR

Investor sentiment globally was marred by fading hopes of the virus being contained anytime soon, leading to fears of a global recession.

Corona Virus Impact will Worsen India Fiscal Situation

The impact of the corona virus is felt in bond yields globally with US 10 year treasury yields plunging to record lows while Japan and Eurozone bond yields are in deeply negative territory.

Government Debt Rollover Pulls up bond yields

The RBI announced a Bond Switch or Conversion auction for Rs 370 billions scheduled on the 24th of February.

Yen and Euro Fall Can pull INR down

The Japanese Yen (JPY) and the Euro fell to multi-year lows against the USD and this sharp fall in the world’s two major currencies is starting to worry markets.

RBI Says Ignore Inflation and Stays Bullish on Bonds

Bond market is shrugging off CPI inflation printing at 6 year highs and core inflation rising above 4% after many months.

INR Outlook can turn positive on oil and Debt Flows

INR outlook can turn positive despite a weak economy largely on the back of weak oil prices and rising debt flows.

INR Outlook weak on Economy, Virus Fears

INR traded marginally lower against the USD last week after the Budget 2020 disappointed market participants.

Helicoptor RBI?

RBI is pumping in money into the markets at cheap rates to encourage banks to lend and also to invest in credit markets.

INR to remain under pressure after Union Budget 20-21

INR traded marginally lower against USD ahead of the Union Budget 20-21, as the spread of new coronavirus across several countries dented global risk appetite.

Bond Yield to Stay Steady on Borrowing, RBI

The government is borrowing Rs 700 billion more in fy 20 as compared to last year but the higher number is unlikely to take up bond yields.

Gross Total Borrowing Bond Supply can be over Rs 16 trillion in fiscal FY2020-21

Total government borrowing Central plus State Governments, could be over Rs 16 trillion in fiscal 2020-21, growth of over 20% year on year.

INR to come under intense volatility Post Budget

INR traded lower against the USD last week ahead of Union Budget 2020-21, which will be tabled in the parliament next on the 1st of February.

Risk Appetite Positive for INR but RBI and Economy Weighs

Despite the improvement in global risk appetite, INR traded lower against the USD last week as market participants remained cautious over the state of the economy after India’s headline inflation surged to an over five-year high of 7.35% in December from 5.54% in the previous month.

Switch & Twist Makes the Bond Yield Curve Completely Artificial

The government has done bond switches worth Rs 2.24 trillion, fiscal 2019-20 year to date to ease the repayment of bond maturities that are coming up over the next two years.

What is the Out look for the Worst Performing Asset in 2017?

The benchmark 10 year government bond is the worst performing asset in calendar year 2017.

USD Fell Amid Trade War Optimism

INR ended the week lower against the USD amid persistent USD buying by the central bank, along with concerns about India’s weakening growth, crude oil price rise and strain on government’s finances, all of which have led to a view of weakness in the INR.

RBI Twists Bond Markets Going into 2020

RBI announced Operation Twist for the second consecutive week for an amount of Rs 100 billion, buying the 10 year benchmark bond, the 6.45% 2029 bond, and selling short end bonds.

RBI Adds a Twist but Markets Will be Wary

RBI is buying the 10 year bond and selling short end bonds, an action that is termed as “Operation Twist”. Twist was done by the US Federal Reserve to bring down long term bond yields in order to keep long term interest rates down.

Higher Crude Oil Prices and Hard Brexit Drives Down INR

INR ended the week lower against USD amid rising crude oil prices and strengthening of the USD after the risk of UK exiting the European Union without a trade deal resurfaced.

Brexit, US-China Trade Deal Pulls Down the USD

INR ended the week higher against the USD last week amid improvement in the market risk sentiment despite the release of weak domestic macro-economic data.

Rate Cuts Could be Over, despite Economic Slow down

CPI inflation for November was at a 40 months high of 5.54% largely on the back of rise in food prices. Core CPI inflation was at 3.4% to 3.6% signalling lack of pricing power given weak consumer demand.

Mixed Trade Signals Keep Currencies on the Edge

INR ended the week higher against the USD last week amid continued foreign fund inflows into corporates who are looking to raise funds from offshore investors.

Government Not Coming Clean with Finances is Hurting Bond Yields

The bond market took the surprise lack of rate cut by the RBI in its policy review last week, as a sign of the government showing higher than budgeted fiscal deficit for this fiscal year.

6.1% Nominal GDP Growth is Bond Market Negative

The nominal GDP growth of 6.1% for the second quarter of fiscal 2019-20 against the projected growth of 11.5% throws the government’s fiscal math for a huge toss.

INR to Come Under Pressure on Low GDP Growth

INR ended the week marginally lower against the USD as market participants remained cautious ahead of the release of gross domestic product data, which was released after market hours on Friday.

Government Revenues in Deeper Stress

The government is facing a revenue shortfall that could exceed well over Rs 2 trillion on the back of a big bang corporate tax rate cut and falling direct tax and GST revenue growth due to the economic slowdown.

Trump, Xi Keep Currencies Guessing

INR gained marginally against the USD last week after the government said it will sell majority stake in BPCL, SCI and CCI.

Liquidity is Holding the Bond Market Firm

Weak economic data from IIP growth to inflation and trade is hurting sentiments on the government’s fiscal deficit.

Weak economic data to weaken INR

INR, last week, fell sharply against the USD, as CPI inflation for October came in at 4.62%, which is a 16 months high.

Bond Yields to Rise on Weak Economic Outlook

The weakening economic outlook prompted Moody’s to lower India’s sovereign rating to negative from stable citing the impact on government finances.

Bailout Government Puts Pressure on the INR

The bailout packages to sectors including banks, NBFCs, PSUs, Real Estate and the big bang corporate tax rate cut have placed the INR under pressure.

USD Weakness & Foreign Fund Flows Help INR to Gain

INR ended the week higher against the USD, largely helped by broad USD weakness on Friday.

Liquidity, Government Finances Keep Yield Curve Steep

The bond market is flushed with liquidity but is reluctant to take down bond yields sharply at the longer end of the yield curve.

Market Nervous as IMF Forecasts Global Growth at Decade Lows

INR ended the week lower against the USD amid concerns over the progress of China-US trade talks, IMF downgraded India growth forecast and there was increased demand for the USD from importers.

Government can Borrow Upto Rs 1 trillion More

The yield on the 10 year benchmark bond, the 6.45% 2029 bond, moved up by 1bps week on week to close at 6.52% levels on worries of extra borrowings by the government.

Falling Growth Worries Bond Markets on Borrowing

IIP data for August 2019 showed a negative growth of 1.1%, the lowest in 6.5 years while passenger vehicle sales fell 24% year on year in September.

US-China Trade Deal & Brexit Optimism Boosts Market Sentiment

INR ended the week lower against the USD after exhibiting volatility during the week amid uncertainty over US-China trade deal, rising crude oil prices, foreign fund outflows and on fears that the RBI may prevent a sharp rise in the INR through its USD buying interventions.

USD Under Pressure Amid Weak Economic Data

INR ended the week lower against the USD last week, as foreign portfolio investors pulled out funds from domestic assets after the RBI delivered a lower-than-expected cut in the repo rate in its monetary policy meeting on Friday.

New 10 year G-sec Yield to Fall Sharply on Risk Aversion

The cut off in the auction of a new 10 year benchmark government bond came in at 6.45% and the bond yield trended up by 1bps post cut off to close at 6.46%. The old 10 year benchmark bond, the 7.46% 2029 bond saw yields close at 6.66%, 20bps spread to the 6.45% 2029 bond.

Improving Risk Sentiment Helps INR to Gain

INR ended higher against USD last week amid easing crude oil prices and foreign fund inflows.

Rate Cut & Easing Borrowing Worries to Pull Down Yields

Government bond yields are expected to trend down from highs on the back of RBI rate cut and easing of higher than expected borrowing worries.

RBI Rate Cuts Very Much on Cards Despite the Fiscal Hole on Tax Rate Cuts

The bond markets reacted negatively to the big bang tax rate cut by the government on the 20th of September.

INR Takes Back Losses after FM Announcement

INR remained largely volatile last week amid weakness in the global market sentiment but ended the week flat.

ECB & Easing Trade Worries Drive EM Currencies Higher

INR ended the week higher against the USD last week and posted gains for seven consecutive trading sessions amid improvement in global risk appetite and due to the release of upbeat domestic industrial data.

ECB Policy, Domestic Data to Drive RBI Rate Cuts in October 2019

ECB lowering deposit rates by 10 bps to negative 50bps and announcing bond purchase program of Euro 20 billion a month will drive central banks across the world from US Fed onwards to cut rates to keep currencies competitive.

INR Weakens on Domestic Data

INR ended lower against the USD last week, as the appetite for riskier assets worsened amid escalation in trade standoff between the US and China over the weekend. INR was also under additional pressure after a slump in India’s GDP growth for the quarter ended June 2019 weakened the sentiment and affirmed the case of slowdown in global economic growth spilling over to emerging markets.

5 year Swap Yields Plunge on Bets of RBI Removing Floor on Overnight Rates

The release of weak GDP growth data for the1st quarter of fiscal 2019-20, where GDP growth came in at 5%, against full year growth forecasts of around 7%, increased markets expectations of rate cuts by the RBI in its October 2019 policy review.

30 year UST Yields Fall to Record Lows on Growth Fears

INR traded higher against the USD last week following positive developments in the US-China trade talks, easing crude oil prices and over RBI’s decision to transfer a record Rs 1.76 trillion dividend and surplus reserves to the government.

Weak GDP Growth to Steepen Yield Curve

The 10 year benchmark government bond gave up all its gains post RBI dividend to the government and closed the week 13bps higher from lows. Read our report on RBI dividend to government.

Steepening G-sec Yield Curve at Odd swith Inverted Swap Curve

The 2 year government bond saw yields at 5.87% levels with strong bids seen in the last auction. However the benchmark 10 year bond has seen yields rise by over 25 bps from lows over the last three weeks on worries of extra borrowing by the government to provide stimulus to the economy.

Government Measures to Provide Very Short Term Relief to the INR

INR fell to Rs 72-mark against the USD for the first time in 2019, following s selloff in domestic equities and amid weakness in Chinese Yuan, which fell to a fresh 11-year low level. INR depreciated by 0.71% against the USD last week and depreciated by 0.52% against the euro.

Bond Yields Moving on “Noise” Factors

The “Noise” surrounding bond markets has increased in volume and this is moving bond yields at present. Bond yields are being jerked up and down on the various factors that are hitting the markets on an almost everyday basis.

Risk Aversion Grips Global Bonds & Currencies

INR ended the week lower against the USD amid weak risk appetite.

10 year G-Sec Yield Has More Steam Left in Short Term

The benchmark 10 year government bond, the 7.26% 2029 bond saw yields rise by 14bps week on week to close at levels of 6.49%.

Currency Volatility to Rise

Currency markets will see high volatility amid the noise surrounding the markets.

Trump Tariff Threat Drives Down Bond Yields to Fresh Lows

INR ended the week lower against the USD last week as soaring crude oil prices and a fresh flare up in US-China trade tensions weighed on emerging market currencies.

RBI Under Pressure from Markets & Government for Big Bang Accommodation

The RBI is going into this week’s policy review on the back of global bond yields plunging to fresh lows on Fed rate cut and increased tensions in the US-China trade war, the government calling for large rate cuts to shore up a flagging economy and the bond markets pulling down yields to levels factoring in more accommodation in the form of rate cuts and liquidity.

Global Junk Bond Yields Fall on Fed, ECB Easing

INR ended the week lower against the USD last week largely due to sustained foreign fund outflows and firm crude oil prices.

Fed, Ecb to Keep INR BOND Yields Down

The Fed is likely to cut rates for the first time in a decade this week and signal further cuts given the stress world economies are going through, which could filter into the US economy.

Global Bond Yields Crash on Dovish Central Banks

INR ended the week lower against the USD last week despite the expectations of monetary policy easing by the RBI and US Federal Reserve in the coming weeks.

10 year G-sec at 6.36%, Where from Here?

The bullish case for interest rates is still high and that will keep the 10 year government bond yield down and on a downward path, with bits of volatility here and there. RBI, if it sounds caution on more rate cuts in its August policy meet, can drive up the bond yield sharply.

INR Down on FPI Out flows from Equities Post Budget

INR ended the week lower against the USD last week amid rising crude oil prices, foreign fund outflows and due to early week USD strength.

INR Benefits from Budget

INR ended the week higher against the USD on Friday after government in a surprise move announced a lower fiscal deficit and unveiled plans to sell debt overseas.

Bullish Bond Market, What are the Best Bonds to Buy Now?

Rate cut by the RBI in its August policy review is almost certain on the back of the government lowering the fiscal deficit from 3.4% of GDP to 3.3% of GDP for this fiscal year in its budget presented on the 5th of July.

10 year G-sec Yields to Fall Below 6.5% Post Budget

The 10 year benchmark government bond, the 7.26% 2029 bond saw yields close 18bps higher from lows seen a couple of weeks ago, as markets took profits ahead of the budget

Currency Market Remain Cautious Ahead of G20 Summit

INR ended the week higher against USD on Friday and traded above Rs 69 level against USD for the first time since April 11, as the market keenly awaited further cues from the high-stakes G20 summit.

INR Gains as Major Central Banks Sound Growth Alarms

INR ended the week higher against the USD after US Federal Reserve’s monetary policy statement and economic projections raised expectations of a cut in the federal funds target range and spurred foreign fund inflows into domestic financial assets.

RBI, Fed, ECB Signal More Stimulus, to Drive Down Yields Sharply

The bond market is in for a sustained bull run with RBI, Fed and ECB all suggesting stimulus for their respective economies.

Multiple Positive Cues for Bond Yields

Interest rate curves fell sharply last week on the back of multiple positive cues for rates.

Global Central Bank Easing Driving Down Bond Yields

INR, on Friday, weakened to hit two weeks low against the USD tracking losses in Asian currencies market on weak China data and on fragile risk sentiment on trade and geopolitical concerns.

Fed Rate Cut Bets to Drive in FII Flows into G-Secs

Fed rate cut bets pushed down yields on the 10 year UST and also drove down the USD against global majors.

Fed Rate Cut Bets Drive Market Outlook

INR traded higher against the USD last week, helped by falling UST yields and change in June RBI policy stance from neutral to accommodative and cut in Repo Rate by 25bps.

INR Likely to be Under Pressure on GDP & Trump Tariffs

INR that gained from political stability post election results on 23rd May is likely to face heat from the weak 4th quarter GDP numbers and Trump’s tariff threat on Mexico.

RBI Could Cut Repo Rate by 50 bps in June

The sharp deceleration in GDP growth in the 4th quarter of fiscal 2018-19, with growth at 5.8% against full year 2018-19 growth of 6.8%, could prompt RBI to cut rates by 50bps in its policy review this week.

Bond Yields to Fall on Rate Cuts, OMOs

The election victory for the ruling NDA party has taken out political risk from bond markets and also ensures continuity of fiscal policy, as laid out in the interim budget for fiscal 2019-20. Bond yields fell sharply on rate cut hopes and increased liquidity infusion by the RBI.

INR to Consolidate as Political Risk Goes Out

INR traded higher against the USD last week after BJP-led NDA government had a landslide victory in the recently concluded general elections.

INR to Fall to Record Lows on Opposition Win, due to NYAY

INR can fall to record lows if opposition wins the elections, the implementing the NYAY will push up fiscal deficit and take up bond yields sharply.

Bonds Can Tank on Opposition Win due to NYAY

Election results will drive bond yields this week. The biggest risk for bond yields is an opposition win, as implementation of NYAY can cause a huge hole in the fiscal.

U.S.-China Trade Worries Fuel Safe-Haven Demand

INR weakened last week against the USD amid escalation in U.S. China trade war, firming up of oil prices and FII outflows.

Push & Pull Effects Weigh on Directionless G-Secs

The government bond market is being pushed and pulled resulting in bond yields trading in a range and having no clear direction.

INR Strengthen on Easing crude oil prices

INR strengthen last week against the USD amid broad weakness in USD and easing crude oil prices. Crude oil prices fell sharply after data released on Thursday showed that US crude stockpiles rose 9.9 million barrels in the week ended Apr 26 to 470.6 million barrels, highest since September 2017.

Why G-Sec 10*30 Spread is Lower than UST 10*30 Spread?

The government issued a New 30 year bond, the 7.63% 2059 bond, at spreads of 29bps over the 10 year benchmark bond, the 7.26% 2029 bond.

Elevated Oil Prices & Strong USD Keeps INR Under Pressure

INR weakened beyond Rs 70 against the USD last week. On Thursday, the INR fell below the Rs 70 per USD mark for the first time since March this year.

Higher USD Puts INR Under Pressure

INR ended the week lower against USD owing to sustained demand for the USD from importers and rising global crude oil prices.

RBI to be More Aggressive on Liquidity Infusion

Liquidity deficit went above the Rs 1 trilion mark last week, as high government cash balance and rise in currency in circulation sucked out liquidity from the system.

Fresh Worries in Credit Markets on Essel Group Companies Default

Bond markets saw a sharp rise in yields across segments, as markets fretted over elections, rate cut uncertainty and supply.

INR Trades Higher on Easing Global Risk Aversion

INR ended the week marginally higher against the USD on account of selling in USD by banks and exporters amid sustained foreign fund inflows.

The Last of the Rate Cuts?

The bond market reaction to the repo rate cut of 25bps by the RBI in its policy review last week suggests that the market is questioning the way forward for the central bank.

RBI Monetary Policy Pushes INR Lower

INR ended the week lower last week after the central bank delivered its widely anticipated second rate cut of the year but refrained from shifting to a more easy stance on monetary policy.

Short End of the Credit Curve to Collapse on RBI

The bond market will brace for government bond and SDL supply of around Rs 250 billion to Rs 270billion on a weekly basis starting the 1st week of April.

INR to Stay Ranged Until the Elections End in May 2019

INR ended the week lower on month end demand and profit booking. The INR should stay ranged around Rs 69 to Rs 70 levels until the elections end in May.

Hectic Week Ahead for Bond Markets

The financial year end 31st March is always a difficult month for bond markets given tight liquidity conditions and prospects of supply hitting the markets in April, through fresh government borrowing.

INR to Give Up Partial Gains on Swap Auction

The long maturity USD 5 billion USD/INR Swap Auction to be held on 26th March will see the INR give up partial gains that saw the currency rally to 2019 year highs last week.

RBI Long Term USD/INR Swap Drives Positive Credit Market Sentiments

Credit markets saw a new lease of life after a prolonged period of nervousness post the IL&FS debt default in September 2018.

Strong INR May See Profit Taking A head of RBI Swap Auction

The Indian rupee saw strong gains last week on hectic FII buying of Indian assets. The currency is aided by dovish Fed and ECB, low domestic and global inflation and speculation on the current government being reelected in the May 2019 polls.

Bond Market Sentiments Improving

Bond market sentiments are turning distinctly positive with INR strengthening to below Rs 70 to the USD, FIIs turning net buyers of bonds, central banks across the globe turning dovish and RBI buying bonds through OMOs to infuse liquidity into the system.

Dovish Central Banks Drive Currencies & Bond Yields

USD ended the week higher last week against major world currencies despite falling sharply on Friday after the release of mixed labor market report, which showed a surprising slump in job gains for February.

INR is on a Stronger Wicket

The INR ended the week higher against the USD, as Indo-Pak tensions eases after Pakistan handed back an Indian Air Force pilot captured in the confrontation following the Kashmir suicide bombing.

OIS Reflects Optimsm but Not G-secs and Credits

OIS (Overnight Indexed Swaps) yields fell sharply last week on rate cut optimism.

Dovish Central Banks Drive Currency Markets Last Week

The INR ended the week higher against USD on heavy foreign capital inflows after growing expectations that the Federal Reserve would keep interest rate on hold this year.

March Looks to be a Horrible Month for Credits

The release of a dovish RBI policy minutes of the February MPC meeting failed to stop yields from rising across the market segment.

Short End Bonds Bullish on Rate Cut Expectations

Bond yields at the short end of the curve turned bullish on rate cut expectations in RBI April policy.

Risk Appetite Revives on Easing Trade Tension & Shut down Optimism

The INR ended the week marginally higher against the USD despite falling during the later part of the week amid rising crude prices and heavy foreign fund outflows.

Are Rate Cuts Here to Stay, Markets Believe So at the Moment?

The rate cut by the RBI in its policy review last week, saw the markets pulling down yields at the short end of the yield curve with the benchmark 5 year government bond yield falling by 21bps while the 10 year benchmark bond yield fell by just 5bps on a week on week basis.

Supply Concerns to out weigh RBI’s Expected Change in Policy Stance

The interim budget for 2019-20 unveiled higher spending by the government on farmers and unorganized workers and tax sops for the middle class, which have led to fiscal deficit being set at 3.4% of GDP, higher than target of 3% of GDP.

Government Borrowing Math for Fiscal 2019-20 Points to Higher Borrowing

The bond market is awaiting the government borrowing numbers for fiscal 2019-20, which will be released in the interim budget on the 1st of February.

Fed Statement Over shadows Upbeat U.S. Job Report

The INR remained rangebound throughout the week against the USD but ended the week lower as concerns related to fiscal slippage weighed on the sentiment after the interim budget unveiled some big populist measures ahead of the general elections.

INR Could Come Under Pressure on US Tarrifs

The INR ended the week lower last week despite RBI’s Monetary Policy Committee (MPC) lowering the repo rate by 25 basis points to 6.25% in its sixth bi-monthly policy review.

Softer Oil Prices Pushes INR Marginally Higher

The INR ended the week marginally higher against USD last week as softer crude oil prices and gains in domestic equities bolstered currency market sentiments.

Budget Blues for the Bond Market

Government bond yields rose on the back of worries of the government exceeding its fiscal deficit targets in its interim budget to be presented on the 1st of February 2019.

Fiscal Worries & Higher Crude Oil Prices Drive INR Lower

The INR posted a second consecutive weekly loss against the USD, largely due to foreign fund outflows, higher crude oil prices, stronger USD and concerns over an expansionary fiscal policy in the upcoming budget.

New 10year G-Sec Yield AT 7.26%, Where to from Here?

The government issued a new ten year benchmark bond last week, the 7.26% 2029 bond.

INR Under Pressure as Crude Oil Price Extend Gains

The INR ended the week lower after posting gains in the last three consecutive weeks. The fall in INR is largely attributed to the gain in crude oil prices, which rallied by more than 6% last week.

Plunging Onion Prices Drives G-sec Yields Higher

Onion prices have fallen by more than 80% and this is worrying the bond market.

Currency Markets Turn Volatile Amid U.S. Political Instability

The INR was highly volatile last week but managed to end the week higher against the USD despite USD exhibiting strength mid part of the week against major world currencies largely on the back off easing tensions between the White House and the Federal Reserve. However, tumbling oil prices continued to provide support to INR.

G-secs on Turbo Drive, Spreads Lag

Government bonds went on turbo drive last week, as plunging oil prices, falling global bond yields and RBI OMO announcements placed the market on a bull orbit.

Fickle Bond Markets Greets the New RBI Governor

The benchmark 10 year government bond yield fluctuated wildly, rising and falling by 20bps in a couple of days on the back of the drama played out in the RBI.

Trump Fed Rants is No Help to the USD

The INR last week appreciated sharply against the USD and traded below Rs 70 levels during the week, the INR also posted its highest one-day gain since September 2013 on 18th December.

RBI Policy is Ultra Loose, not Calibrated Tightening

RBI has pumped in Rs 1360 billion of primary liquidity into the system through OMO bond purchases and is planning to add Rs 400 billion more in December 2018.

Credit Spreads Offer a Good Risk Profile

Banks have been beneficiaries of the freeze in credit markets post IL&FS defaults a couple of months back.

Indian Rupee Extends Gain Amid Sharp Fallin Crude Oil Prices

The Indian Rupee strengthened above the Rs 71 per USD mark on Thursday for the first time after a gap of two-and-a-half months, as crude oil prices continued to fall.

Fed is Sounding Cautionon Rate Hikes

The Indian Rupee traded below Rs 72 per USD level for the first time since 21st September, as oil prices posted sharp falls last week, easing worries over the current account deficit.

Credit Risk Aversion to Ease Post RBI Board Meeting

RBI could introduce a refinance window for NBFCs, similar to the one introduced in the 2008 crisis, in its board meeting on 19th November.

Fallin Risk Aversion Drives INR Higher

The Indian rupee ended higher last week on fall in risk aversion post US mid term elections, with equities rising and bond yields rising, as markets cut safe haven assets positions.

Yield Curve Will Steepen Sharply if, Dr Urjit Patel Resigns

Government bond yields fell on the back of INR strength, easing global oil prices, RBI OMO bond purchases and FII buying of INR Bonds.

Government Wants Free Money from RBI, What are the Ramifications?

The government has been eyeing RBIs contingency reserves of more than Rs 3 trillion as it believes that the money belongs to the government and not the RBI.

INR Holds above Record Lows as Oil Prices Fall

Indian Rupee exhibited high volatility last week and ended the week lower against the USD.

G-secs will be in Short Supply on RBI OMOs

RBI has announced OMO bond purchases of Rs 400 billion in November and this could lead to a short supply of government bonds in the market for this fiscal half year.

RBI, Please take off your Blinkers and follow Rajan and Bernanke

The minutes of the October policy review of the MPC is purely focused on inflation and has completely ignored the stress the market is going through at present.

INR Ends a Volatile Week Off Lows

Indian Rupee gained last week against the USD despite touching fresh record low levels of Rs 74.48 against the USD on Thursday.

Short End Credits Stay Under Pressure despite Gsec Rally

Government bond yields fell last week on the back of RBI OMO bond purchases, expectations of a lower CPI inflation print for September 2018, INR rallying from record lows and drop in UST yields from multiyear highs.

INR Falls on Amazon and RBI

Indian Rupee fell to fresh record low levels of Rs 74.22 on Friday, breaching the Rs 74-mark against the USD, after the Reserve Bank of India (RBI) kept key policy rates unchanged.

IL&FS is not Reflective of the whole NBFC Sector

The October RBI policy decision of no rate hike was largely determined by the mess caused by IL&FS default.

The Worst may be Behind for Bond Markets

The bond market has had a difficult period for the whole of this fiscal year with sentiments being hurt by multiple factors of INR depreciation, FII selling, bond supply from centre and states, RBI rate hikes, rising oil prices and even a credit crisis on IL&FS default. Liquidity too has turned structurally negative.

Fed Rate Hike Guidance Positive for Markets

Indian Rupee was range bound last week ahead of the important RBI policy statement that will be released this week.

USD Weakens as Risk Aversion Fades

Rally in US equities to record highs and global equities to record highs on receding fears of an esclating trade war between US and China saw the USD come off last week.

Credit Markets Facing Volatility on NBFC Worries Post IL&FS Default

Volatility shifted to credit markets last week on the back of contagion effect of IL&FS default. Yields on DHFL CPs and bonds spiked on Friday as rumors of liquidity issues with the company hit the market

No Bright Spot on the Horizon Yet for Bond Markets

The OMO announcement will provide support to bond yields in the near term but markets will stay nervous on borrowing and rate hike worries.

India Takes Series of Measures to Stem Declines inIndian Rupee

Indian Rupee ended the week at Rs 71.86 levels against the USD after touching its fresh all-time low level of Rs 72.91 on Wednesday.

Sentiments to Stay Negative for Bonds

The bond market is hit by negative factors from all sides, falling INR, negative BOP for the 1st quarter of fiscal 2018-19, rising fuel prices, RBI rate hike expectations in October, higher probability of more Fed rate hikes, risk aversion on global trade tensions and impending higher government bond supply starting October 2018.

Negative BOP Hurts the INR

India’s 1st quarter of fiscal 2018-19 saw the BOP turn negative, which is leading to the sharp fall in the value of the INR.

Can Economic Growth Help INR?

The Indian Rupee (INR) breached Rs 71 level against the USD for the first time ever on Friday on the back of a selloff in emerging market currencies gathering pace, month-end demand for the USD from oil importers and rise in crude oil prices.

Strong Economy Gives RBI Lots of Head room to Raise Rates

The first quarter 2018-19 GDP growth at 8.2% is higher than RBI full year forecast of around 7.4%.

Bond Market Volatility to Rise in September

Bond markets will see volatility rise in the month of September as the market braces for liquidity tightening, 2nd half government borrowing and RBI policy in the 1st week of October.

Global Uncertainty & Crude Oil Prices Continue to Drive INR

The INR traded below Rs 70 mark against the USD for the most part of the week but recovered on Friday to end the week at levels of Rs 69.91 to the USD.

Heightened Global Uncertainty in Likely to Keep INR Under Pressure

The INR fell to below Rs 70 to the USD for the first time ever on the 14th of August 2018 and touched an all-time low level of Rs 70.40 to the USD, on the back of Turkish Lira collapse and widening trade deficit.

RBI Calmon INR is Preventing Bond Yields from Rising Sharply

10 year benchmark gsec yield rose last week by 11bps as the INR fell to below Rs 70 to the USD for the first time on record.

Global Currency Market Nervous Amid Turkish Turmoil

Like many other countries around the world, Turkey is also at odds with the Trump administration and has been hit with the U.S. sanctions.

RBI Fx Sales to Spur more OMOs

RBI sold USD 6.18 billion in June 2018 and cumulatively has sold USD 14.34 billion in the Aprril – June 2018 period, taking out Rs 976 billion of liquidity in the process.

Bond Markets will Worry if RBI keeps Rates on Hold

RBI rate hike last week was largely shrugged off by the bond markets, with 10 year benchmark government bond yields falling before rising from lows to close the week 2bps lower week on week at 7.76% levels.

RBI 50bps Rate Hike will be INR Positive

Indian Rupee posted gains last week against the USD after touching its new all-time low level of Rs 69.13. INR was supported by USD selling from banks and exporters.

RBI has Leeway to Raise Rates by 50bps in August 2018 Policy Meet

50bps rate hike will take up bond yields by around 25bps after which yields will stabilise. Overall, bond markets will view the 50bps rate hike as positive as pace of rate hikes can then be easily calibrated going forward removing market uncertainty.

Credit Markets Should Start Easing Risk Premiumin Yields

The falling INR (Chart 1) that closed at all time lows of below Rs 69 to the USD has impacted credit markets the most, especially at the short end of the yield curve.

INR Tests Lows Again

Indian Rupee (INR) touched a new all-time low of Rs 69.13 against the USD as the Modi government faced its first no-confidence motion, tabled by opposition parties in Parliament on Friday.

Bond Markets are Shrugging Off Rate Hike Expectations

The fact that bond yields have surged by 150bps from lows seen last year suggest that markets will not react to rate hikes by the RBI in its bi-monthly policy reviews.

Uncertainty Persists in Currency Markets on Multiple Issues

Indian rupee slumped to its lowest-ever close on Thursday at Rs 68.88 against the USD, the previous closing low was the Rs 68.81, on August 28, 2013, when the currency was in a free fall as foreign investors pulled out from emerging markets in what came to be known as the ‘taper tantrum’.

Liquidity in High Surplus despite RBI Fx Sales is Positive for the Credit Curve

RBI has been selling USD on the back of the INR closing at all time lows last week. Fx sales have sucked out liquidity of at least Rs 1 trillion

INR Gains Despite Trade Tensions

Last week the currency market globally exhibited high volatility largely due to the rising concern over U.S.-China trade war.

Bond Markets to Return to Normalcy

Bond markets are returning to normalcy after three months of high volatility that saw 10 year government bond yields jumping sharply by 80bps from levels of 7.20% seen post RBI April policy meet to multi year high levels of 8%.

Credit Markets is Where Money Will be Made in India

Bond markets in India and globally are factoring in policy normalization by central banks. RBI hiked the repo rate in its meeting on the 6th of June while Fed hiked rates for the 2nd time this year in its meeting last week.

Long Bonds Plus Low Rated Credits for Rate Hike Cycle

RBI hiked the repo rate by 25bps last week and will hike rates by at least 3 more times in the next nine months.

RBI Rate Hike Lowers Market Uncertainty - RBI June 2018 Policy Review

The 25bps rate hike by the RBI lowers uncertainty for markets on the timing of the hike. Bond yields are largely factoring in multiple rate hikes and the 25bps rate hike has not moved markets by much.

INR has Seen the Worst for Now

The INR on Friday, posted its biggest single day gain since March 14, 2017, surging 0.66% to close at level of Rs 67.78 against the USD .

Yield Curves are Trading on Fear, which Provides Opportunity for the Strong Hearted

RBI and the government must calm fears on Banks stability if markets are to trade normally. Fear provides opportunity for traders and investors to buy into higher yields but volatility will be high and one would have to have a strong heart to ride out the volatility.

Easing Trade War Tensions to Provide Relief for INR

INR that has fallen sharply this year on the back of many factors would see relief on easing trade war tensions.

Bond Yields Have Topped, Play on the Long Side

The worst looks to be over for the bond markets, that have seen a sharp rise in yields across segments of the curve over the last two months.

INR Looks Oversold

INR was under pressure last week as it touched 15-months lows against the USD amid growing concerns over capital outflows as well as concern over trade deficit due to rising crude oil prices.

Credits Are a Screaming Buy – Weekly Fixed Income Market Analysis

The levels of 1 year CP, and CDs and 3 to 5 year Corporate Bonds are highly attractive and present very low risk.

Why is the INR on a Free Fall?

The INR closed at over one year lows last week, prompting the RBI to sell USD. RBI could have sold around USD 3 billion to prevent a free fall in the INR.

RBI has to do Buy Bonds Aggressively to Calm Jittery Bond Market

Bond market is jittery and this is showing in trading volumes and appetite for government bond auctions.

10-year UST and 10-year G-sec – Buy or Sell the Spread?

At 3% yields, the spread between the US 10 year US treasury yield and the 10 year government of India bond is at levels of 475bps.

Can INR Weaken Further?

INR lost more ground against the USD last week to close at over one-year lows. 10 year UST yield crossing 3% and rising oil prices drove the INR down. Will the INR weaken further?

Bond Market Volatility, at What Yields Can Sentiments Turn Normal Again?

Bond yields will hover around 7.75% with an inclination to rise but at every higher level of yields, market sentiments will start to change as the market is overly pessimistic at this point of time.

INR Getting Sold by Unhedged Position Unwinding

INR has seen sustained strength in calender year 2017 on the back of strong FII flows in debt and equity. The strong INR too allowed importers to go easy on hedges.

New 7.37% 2023 G-sec Looks Good on the Curve

The government issued a new 5 year bond for Rs 30 billion on Friday the 13th of April. The cut off for the bond came in at 7.37% and bids were 4x the auction size, indicating good demand for the bond.

USD Under Pressure Amid Geopolitical & Trade Worries

USD ended the week lower amid trade worries, geopolitical tension and the release of weak economic data last week.

Can the 10 year Gsec Yield Sustain at Lower Levels After 60bps Rally?

The 10 year government bond, the 7.17% 2028 bond, saw a cut off of 7.15% in the government bond auction on Friday, the 6th of April.

INR to Gain from Trade Wars

The Indian Rupee appreciated by 0.31% against the USD after RBI lowered its inflation forecast and revised upwards its growth outlook, in its recently concluded policy meet.

Upbeat U.S. Economic Data Offsets Trade War Worries

USD ended the week higher largely on the back of easing trade tensions between U.S. & China, better than expected U.S.

Government wants Lower Bond Yields, Will RBI Oblige?

The government took cognizance of rising bond yields and accordingly released a benign first half fiscal 2018-19 borrowing calendar.

RBI making up for Rs 2.2 trillion of Liquidity Outflow

RBI has been pumping in liquidity through Repos to make up for a shortfall of Rs 2.2 trillion of liquidity in the system.

USD Falls as Trade Tensions Overshadow Fed Rate Hike

USD ended the week lower despite Federal Reserve hiking interest rates on Wednesday.

Global Trade Worries and Soft U.S. Economic Data Weighs on USD

USD ended the week lower last week amid global trade tensions and U.S. political turmoil.

SDL’s to Face Rough Weather in Fiscal 2018-19

State government borrowings are rising and rising fast. India’s state government borrowing at over Rs 4.07 trillion in fiscal 2017-18, is around 22% of total SDLs outstanding as of fiscal 2016-17, which was at Rs 18548 billion.UDAY bonds outstanding is at Rs 2.08 trillion.

Bond Yields to React to US Jobs Data

Bond yields fell from highs last week as markets took profits from shorts. The market was in an oversold position with 10 year benchmark government bond yields rising by around 50bps since 23rd January 2018.

NFP and Trump Flexibility Drives USD Higher

USD ended the week higher last week on better that expected U.S. monthly jobs report and Trump’s flexibility on U.S. tariffs.

3 & 5 Year AAA Corporate Bond Yields Offer Very High Value & Safety Margin

Confused where to invest in the current fixed income environment? Look no further than 3 & 5 year AAA corporate bonds that are looking extremely attractive on the curve. At levels of 7.95% and 8.18% for benchmark 3 & 5 year AAA corporate bonds respectively, spread over repo and spread over the corresponding maturity government bonds offer high returns as well as high margin of safety.

Trump Metal Tariff Over shadow Fed Hawkishness

USD ended the week marginally higher last week after paring most of its gains seen during the week after President Donald Trump said the U.S. will impose tariffs on steel and aluminium imports.

Bench mark Bonds Rotational Trading is Leading to Yields Spiking

Bond prices tanked again last week, taking 10 year benchmark government bond yields to two year high levels of over 7.75%. Bond yields have been on a sustained rise since October 2017, with yields rising by over 100bps. Bond yields rose to levels of 7.78% last week before paring losses to close at 7.68%.

USD Surges on Hawkish FOMC Minutes

USD ended the week higher against major world currencies as minutes from Federal Reserve’s January meeting underlined expectations for faster hikes in U.S.

RBI Says Hedge, Banks Ask How & Bond Yields are Spiking

In our Fixed Income Risk & Strategy Workshop for Treasuries held on the 16th of February 2018 in Mumbai, one topic that was debated extensively was banks appetite for government bonds going forward.

USD Reverses Earlier Gains as Equities Show Resilience

USD slipped lower last week, as global equity markets showed signs of stability after a recent rout, reviving risk appetite.

RBI Will Have to Buy Rs 1 trillion of Bonds in Fiscal 2018-19

The bond market is really worried about the absorption of supply of government bonds in fiscal 2018-19. The government is scheduled to borrow a gross of Rs 6.05 trillion and net of Rs 4.62 trillion of dated government bonds.

USD Gains on Global Equity Sell - off

USD rose sharply against major world currencies last week, amid sell-off in the global equity markets.

Good Money is to be Made in Bonds over 2months, but Patience is Required

The bond market is giving good levels for making money over the next 2 months. Bond yields have backed up sharply over a shot spam of time and risk – return is in favour of long rather than short positions.

Fed’s Upbeat Remarks Drive USD Higher

Indian Rupee depreciated by 0.81% against USD and by 2.45% against Euro.

PSU Bank Recapitalization Bonds – Banks May Have No Appetite for Government Borrowingin 2018-19

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

Big ? on Absorption of around Rs 11 trn of Supply in Fiscal 2018-19

The Central and State Governments are set to borrow a total of around Rs 11 trillion in fiscal 2018-19. Central government gross borrowing is estimated at Rs 6.4 trillion (Read our note on Fiscal Deficit and Government Borrowing for 2018-19) while states could borrow a gross of Rs 4.6 trillion.

Confusion Over USD Policy Drives It Lower

USD continues its broad weakness to post decline for the fifth consecutive week as stronger global growth makes U.S. assets less attractive especially during a time when investors are worried about trade wars and the U.S.

Knee Jerk Reaction by RBI and Government Does More Harm Than Good for Bond Yields

RBI is causing more confusion for markets at a time when there is extreme nervousness. The Central Bank rejected all bids for the 7.73% 2034 bond and the 7.06% 2046 bond in the government bond auction last week. RBI had first rejected bids for the long bonds in the auction on 5th January and then accepted all bids in the auction on 12th January at much higher levels of yields.

The Fear of U.S. Shutdown Puts Additional Pressure on USD

USD continued to remain under pressure last week and posted its fifth consecutive week of decline. Many major currencies climbed to fresh multi-month and multi-year highs against the USD.

USD Continues its Downward Trend

The USD is having a very difficult start to the year after weakening by around 10% against a basket of major currencies last year. Economic outlook in other parts of the world, particularly in Europe, has improved, leading to the USD losing its safe haven status.

Bond Market Misery to Continue on RBI Confusion, Economic Data and Budget

The new ten year benchmark bond, the 7.17% 2028 bond saw yield rise by 19bps week on week to close at levels of 7.28%. The bond priced fell to Rs 99.23 below Rs 100 face value.

Near Term Negatives Outweigh Positives for The New Bench mark 10 year Bond

The government auctioned a new ten year benchmark bond in its bond auction last week. The cut off for the bond came in at 7.17% and post auction cut off, the bond yield fell to 7.09% levels.

NFP and Strong Euro Weighs on USD

USD fell last week against major world currencies as data showed that the U.S. economy created fewer jobs than expected in December.

Fed Hawkishness Will Drives USD Higher in 2018

The Year 2017 was the worst year for the USD in more than a decade with the USD Index (DXY) falling by over 9%.

Factors that Drove 10 year Gsec Yields in CY-2017

The benchmark 10 year government bond, the 6.97% 2027 bond, saw yields close at calendar year highs last week.

INR recovered and remained strong in 2017, will it be stronger in 2018?

The INR is up by 6.16% against the USD since December 2016 when it was trading slightly above its all-time low levels of Rs 68.8 (seen in August 2013) against the USD.

USD Stays Steady not on Fed Rate Hike buton Tax Reform Progress

US Fed raised its benchmark interest rate by 25 bps to a range of 1.25% – 1.5% and kept its rate outlook unchanged for 2018 & 2019.

Liquidity Will Surge on Capital Flows

Gujarat Poll results, strong trade data, record levels of Sensex & Nifty and Fed on a steady rate hike path point to a surge in capital flows in 2018.

Multiple Worries for the Bond Market

RBI stated post policy last week that it will suck out excess liquidity arising from fx operations by issuing MSS bonds and carrying out OMO bond sale auctions.

USD Strengthens on Jobs Report

USD ended higher last week on healthy jobs data and expectations of tax reform to get done by December end.

USD Struggles to Find Strength Despite Strong Data

USD saw volatile trading last week. U.S. Tax bill and series of economic data were in focus last week.

Only Surprise from RBI on 6th December Will be Positive Surprise for Markets

The 10 year benchmark bond, the 6.79% 2027 bond, saw yields close at over one year high levels at 7.06% last week.

Fed Inflation Concerns Pull Down USD

Last week, the USD trended lower after Fed policy minutes release. While the Fed is on a rate hiking path, some policy makers including Yellen are concerned over persistently low inflation.

Where to Make Money in Bonds?

Bond traders are at a wits end on how to make money in the market. Bond yields have backed up sharply by over 40bps since RBI October policy review.

Rating Upgrade & RBI Cancelling OMO May Not Provide Respite for 10 yr Gsec

The 10 year benchmark government bond, the 6.79% 2027 bond, saw yields rise by 9bps week on week to close at over one year high levels of 7.04%.

INR to Benefit from Rating Upgarde Sentiments Amidst USD Weakness

INR gained 0.23% against the USD last week to close at levels of Rs 65.01.INR had trended lower to levels of Rs 65.40 on the back of global market risk aversion before gaining on Friday.

10 year Gsec at 7%, Has it Peaked?

Supply creates its own demand when there are expectations of rate cuts or of inflation staying low.

Politics, Economics and Monetary Policy Will Drive USD in the Coming Weeks

USD started the week on a high note amid contrasting monetary policy outlook between the Federal Reserve and the Bank of Japan.

Is the Global Low Rate Cycle Over and Is it Over for India as Well?

The new Fed Chair Jerome Powell, to replace Janet Yellen, is expected to continue rate hikes at a slow and steady pace.

USD finds Strength from Economy and Powell

USD saw choppy trading last week as market participants were cautious ahead of FOMC meet, announcement of new Fed chief, unveiling of U.S. Tax bill and series of economic data.

ECB will Drive Currency Markets in the Next One Year

ECB will keep rates at record lows for the next one year, provide unlimited funding to banks and keep up asset purchases albeit at a lower size.

Supply will Pull Up Bond Yields

The Rs 2.11 trillion bank recapitalisation plan and the Rs 6.92 trillion road construction plan entails huge supply of bonds.

USD to move on Yellen Replacement Speculation

After rising for four consecutive weeks, USD fell on profit booking despite relatively decent U.S. data released in the recent past.

High Liquidity , Neutral Policy and Improving Credit Ratios – Highly Positive for High Yield Bonds

High Yield Bond Spreads are set to fall further as the market searches for returns at a time when interest rates are seen as bottoming out.

Rate Hike Expectation is Driving USD Higher

Stronger-than-expected economic data along with hawkish comments from Federal Reserve officials and sharp fall in Euro after Catalans voted for independence helped to propel the USD sharply higher before the rally fizzled on reports that North Korea could test missiles this weekend.

Bids Rejection on 6.57% 2033 Bond is Negative for Yields

RBI rejected all bids for the 6.57% 2033 bond in last week’s government bond auction and instead exercised the green shoe option on the 6.68% 2031 bond.

RBI Policy – The Only Surprise Would be a Rate Cut

Rate cut expectations are completely out of the bond market and if at all there is any surprise in RBI 3rd and 4th October policy review, it will be a rate cut.

Hawkish Yellen Drives USD Higher

USD ended the week in positive territory largely on the back U.S. tax plan, hawkish comments made by Federal Reserve Chair Janet Yellen and the release of upbeat U.S. economic data.

INR Fall is Temporary

Indian Rupee fell to 6-month low levels against the USD.

Bond Market – Relax, it’s not 2013

Bond market participants will never forget the June-September 2013 period when Fed led a crash in bond prices and the value of the INR.

USD Fights Back Amid Weak Economic Data and Fresh North Korea Tension

USD remained highly volatile last week but managed to end the week higher against all of the major currencies except for the British pound despite a weaker retail sales report and news that North Korea fired another missile over Japan.

Technically India’s FX Reserve sare at USD 426 billion, a Factor that Should Go in to RBI October Policy Review

India reported its highest fx reserves at USD 400.7 billion as of 8th September 2017 despite current account deficit jumping to 2.4% of GDP in the 1st qtr of this fiscal year from 0.1% of GDP and 0.6% of GDP in the 1st and 4th quarter of last fiscal year respectively.

USD Hit by Concerns Over North Korea, Rates Outlook

USD came under pressure last week on rising tensions between the U.S. and North Korea, a top Federal Reserve official urging caution over further rate increases until the pace of inflation improved and hurricanes causing disaster in the US.

UST and USD area Liquidity Headache for RBI

Sliding UST yields and USD is a liquidity headache for RBI.

USD Gains Despite Weak Jobs Report

USD ended the week on a higher note despite weak monthly jobs report.