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.
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 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.
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.
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.
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.
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.
G-sec yields continued its upward trend last week as markets faced heavy supply of SDLs even as rate hikes and budget looms ahead.
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.
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.
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.
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.
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.
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.
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
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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 & 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%.
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.
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?
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.
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.
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.
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.
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.
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.
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.
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.
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.
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)
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.
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%.
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.
A steepening UST yield curve drove risk appetite higher in global markets, pulling up risk assets.
RBI delivered on rate cuts with the Repo rate at record low levels of 4% and Reverse Repo rate at 3.35%.
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.
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.
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.
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%.
The RBI announced a Bond Switch or Conversion auction for Rs 370 billions scheduled on the 24th of February.
RBI is pumping in money into the markets at cheap rates to encourage banks to lend and also to invest in credit markets.
The benchmark 10 year government bond is the worst performing asset in calendar year 2017.
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.
Weak economic data from IIP growth to inflation and trade is hurting sentiments on the government’s fiscal deficit.
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.
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.
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 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.
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.
Currency markets will see high volatility amid the noise surrounding the markets.
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.
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.
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.
Interest rate curves fell sharply last week on the back of multiple positive cues for rates.
Fed rate cut bets pushed down yields on the 10 year UST and also drove down the USD against global majors.
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.
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.
OIS (Overnight Indexed Swaps) yields fell sharply last week on rate cut optimism.
Bond yields at the short end of the curve turned bullish on rate cut expectations in RBI April policy.
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 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.
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.
Onion prices have fallen by more than 80% and this is worrying the bond market.
Banks have been beneficiaries of the freeze in credit markets post IL&FS defaults a couple of months back.
Indian Rupee exhibited high volatility last week and ended the week lower against the USD.
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.
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.
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
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.
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.
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.
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.
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.
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.
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.
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.
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%.
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.
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.
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.
The USD is having a very difficult start to the year after weakening by around 10% against a basket of major currencies last year. Economic outlook in other parts of the world, particularly in Europe, has improved, leading to the USD losing its safe haven status.
The government auctioned a new ten year benchmark bond in its bond auction last week. The cut off for the bond came in at 7.17% and post auction cut off, the bond yield fell to 7.09% levels.
The benchmark 10 year government bond, the 6.97% 2027 bond, saw yields close at calendar year highs last week.
USD ended higher last week on healthy jobs data and expectations of tax reform to get done by December end.
Supply creates its own demand when there are expectations of rate cuts or of inflation staying low.
The Rs 2.11 trillion bank recapitalisation plan and the Rs 6.92 trillion road construction plan entails huge supply of bonds.
Bond market participants will never forget the June-September 2013 period when Fed led a crash in bond prices and the value of the INR.
Indian Rupee fell to 6-month low levels against the USD.
India reported its highest fx reserves at USD 400.7 billion as of 8th September 2017 despite current account deficit jumping to 2.4% of GDP in the 1st qtr of this fiscal year from 0.1% of GDP and 0.6% of GDP in the 1st and 4th quarter of last fiscal year respectively.
USD remained highly volatile last week but managed to end the week higher against all of the major currencies except for the British pound despite a weaker retail sales report and news that North Korea fired another missile over Japan.
Sliding UST yields and USD is a liquidity headache for RBI.
USD came under pressure last week on rising tensions between the U.S. and North Korea, a top Federal Reserve official urging caution over further rate increases until the pace of inflation improved and hurricanes causing disaster in the US.
USD ended the week on a higher note despite weak monthly jobs report.
Incremental news and data point to more monetary easing by the RBI in its October 2017 policy review.
The OIS market saw 5 year OIS yields falling by 14bps week on week to close at levels of 6.12%.
RBI is widely expected to cut rates by 25bps in its policy review meet on the 1st and 2nd of August 2017.
RBI’s auction of Rs 100 billion of government bonds through OMO saw demand for Rs 600 billion.