Fixed Income And Currency Market

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.

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.

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.

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 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.

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.

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

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 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.

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

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.

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.

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

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 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.

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.

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.

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.

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.

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 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.

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 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.

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 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.

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.

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.

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.

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.

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?

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.

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.

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.

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.

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 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.

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.

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 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.

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

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 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.

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 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 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.

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.

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.

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..

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.

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 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

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 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

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.

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 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.

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 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.

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.

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.

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.

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 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.

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 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.

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.

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 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.

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.

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.

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 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 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 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.

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 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.

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.

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

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 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 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.

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.

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 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.

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.

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.

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.

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.

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?

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.

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.

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 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.

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

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 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.

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?

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.

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.

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.

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 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.

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.

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.

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 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.

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 & 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.

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 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.

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 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.

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?

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 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.

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

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 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 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 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.

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 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 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.

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.

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 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.

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

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 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.

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

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

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 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

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 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%.

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 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.

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

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.

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.

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.

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.

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 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.

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.

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

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

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 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 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.

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.

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.

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

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.

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.

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, 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?

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 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.

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.

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 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 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.

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 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.

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

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.

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

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.

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

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 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.

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.

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.

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.

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 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.

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 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 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.

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.

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.

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.

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.

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.

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%.

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.

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.

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.

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.

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.

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.

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.

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.

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 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 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.

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.

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.

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.

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.

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.

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.

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%.

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.

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

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

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.

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

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.

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.

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

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 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.

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.

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.

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.

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.

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 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)

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.

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.

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.

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 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 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.

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.

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.

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, 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.

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.

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.

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 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.

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 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 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%.

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.

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.

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, 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.

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.

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

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.

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

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

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

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.

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

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.

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

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.

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

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.

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.

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

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

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 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.

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.

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.

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.

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, 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.

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

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%.

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.

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.

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

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

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.

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 despite a weak economy largely on the back of weak oil prices and rising debt flows.

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

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

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.

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.

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 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.

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.

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.

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

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.

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 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.

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.

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.

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.

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.

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.

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 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.

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.

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

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

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

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

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.

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

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

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.

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.

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.

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.

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.

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.

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

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.

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

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

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 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 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.

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.

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.

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.

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.

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.

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.

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

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

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.

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.

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.

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

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.

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 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 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.

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.

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

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 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.

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

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

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

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 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.

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.

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

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.

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.

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

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

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.

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.

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.

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

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.

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

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 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.

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.

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 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.

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.

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.

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

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 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.

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.

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

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.

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

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

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.

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

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.

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.

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.

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 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.

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

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.

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.

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

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

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.

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.

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.

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

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.

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.

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

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.

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

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.

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

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

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.

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

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.

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.

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.

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

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.

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.

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.

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.

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.

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 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.

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.

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.

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.

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.

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.

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.

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’.

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

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

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%.

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.

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

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.

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 .

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.

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

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

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.

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.

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

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.

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 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 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.

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

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.

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.

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

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

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

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.

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

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.

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

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.

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.

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 ended the week higher against major world currencies as minutes from Federal Reserve’s January meeting underlined expectations for faster hikes in U.S.

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 slipped lower last week, as global equity markets showed signs of stability after a recent rout, reviving risk appetite.

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 rose sharply against major world currencies last week, amid sell-off in the global equity markets.

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.

Indian Rupee depreciated by 0.81% against USD and by 2.45% against Euro.

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

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.