Debt Perspective April il 2018 2018
Debt Markets - Revie iew
Bond Market Overview • Bond markets rallied in March. The 10-year government bond yield fell 39bps during the month, to end at 7.30%. • Bond yields fell in March due to reduction in government borrowing for the next six months amid the RBI allowing banks to spread mark to market losses on bonds over four quarters. Moreover, the RBI's Monetary Policy Committee (MPC) turned dovish and reduced inflation forecasts; which further supported market sentiments. • The government unveiled a Rs 2.88 lakh crore market borrowing roadmap for the first half of FY19, which would be 22.6 % lesser than Rs 3.72 lakh crore raised during the same period last financial year. • Factory output growth recorded a four-month high of 7.1% in February, aided by strong show in manufacturing and capital goods sectors. The Index of Industrial Production (IIP) had grown at a modest 1.7% in February last year. • Retail inflation, measured by Consumer Price Index (CPI), was at a five-month low at 4.28% in March on the back of lower food inflation at 2.81% (against 3.26% in February 2018). The March 2018 CPI inflation modestly exceeded the RBI’s medium term target of 4% • The annual rate of inflation, based on monthly WPI, stood at 2.47% (provisional) for the month of March 2018 (over March 2017) as compared to 2.48% (provisional) for the previous month and 5.11% during the corresponding month of the previous year. The rate of inflation based on WPI Food Index consisting of ‘Food Articles’ from Primary Articles group and ‘Food Product’ from Manufactured Products group decreased from 0.07% in February 2018 to (-) 0.07% in March 2018. • India's fiscal deficit for the Apr 2017- Feb 2018 period increased to Rs.7.16 lakh crore, which is 120% of the government’s revised target for FY18. The fiscal deficit target for the current fiscal was revised at 3.5% from the earlier 3.2%. The target for FY19 has been set at 3.3% making changes to fiscal consolidation glide path
Debt Roundup Mar’18 Feb’18 Change Call Rates/Interest Rates Call Rates 6.10% 6.05% 5bps Repo rate 6.00% 6.00% 0bps Statutory Liquidity Ratio (SLR) 19.50% 19.50% 0bps CD Rates 3 month 6.90% 7.30% 40bps 6 month 7.15% 7.55% 40bps 1 Year 7.25% 7.59% 34bps CP Rates 3 month 7.50% 7.90% 40bps 6 month 7.70% 8.05% 35bps 1 Year 7.80% 8.15% 35bps T-Bill/G-sec 91 Days 6.11% 6.27% 16bps 364 Days 6.40% 6.65% 25bps 7.17% GOI 2028 7.30% 7.68% 39bps Corporate Bonds (PSU) 1 Year 7.35% 7.70% 35bps 3 Year 7.57% 7.83% 26bps 5 Year 7.77% 8.07% 30bps 10 Year 7.88% 8.40% 52bps International Markets 10 Year US Treasury 2.73% 2.86% 13bps 3 Months LIBOR 2.29% 1.98% 31bps 12 Months LIBOR 2.67% 2.47% 20bps Brent Crude ($) 69.59 66.23 3.36 Gold ($) 1340.37 1317.79 22.58
Yield Curve- Movement Analysis 8.10 28/02/2018 31/03/2018 7.90 7.70 7.50 7.30 7.10 6.90 6.70 6.50 6.30 6.10 3 months 6 months 1 year 2 year 3 year 4 year 5 year 6 year 7 year 8 year 10 year • Bond markets rallied in March. The 10-year government bond yield fell 39bps during the month, to end at 7.30%. Bond markets traded with positive bias as headline inflation cooled off substantially for month of February which subdued fear of rate hike in near future. Moreover, bond yields fell further on the government’s assurance that borrowings in the first half of FY2019 will be lower than expected, which if implemented would slightly ease the pressure on interest rates. • The government announced that India will sell bonds worth Rs. 2.88 trillion during Apr-Sep of 2018 accounting to only 47.56% of the government’s budgeted fiscal-year borrowing, which is lower than 60%-65% in the last five years. • However, persistent FII outflows from the debt segment after depreciation of the local currency and rise in crude oil prices; kept the bond yields under check.
In India ian Economy - Revie iew
February IIP growth slips to 7.1%; retail inflation cools to five-month low in March Ma March ch WPI WPI inf nflation hi hits eigh ght-month low to o 2. 2.47%; ; India ndia's Ma March ch Re Retail Inf nflation Ea Eases to o 4. 4.28 28% WPI CPI 8% 7% 5.7% 5.2% 6% 5.1% 4.9% 4.4% 5% 3.9% 3.9% 3.9% 4.3% 3.6% 3.6% 3.6% 3.3% 3.2% 4% 3.0% 2.3% 2.6% 2.4% 2.8% 2.5% 3% 2.5% 1.9% 2.2% 1.5% 2% 0.9% 1% 0% Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 IIP P gro rowth slips to o 7.1% in n February, Man Manufactu turing gro rowth eases slightl tly to o 52.1 in n Feb 12% 10.30% IIP PMI 7.50% 8.40% 8% 7.10% 7.10% 5.70% 4.00% 4.70% 4.50% 4% 3.98% 4.00% 3.75% 3.80% 3.30% 3.10% 2.80% 1.02% 2.20% 1.70% 0.90% 0.60% 0.2% 0% -0.10% -0.10% -1.20% -1.20% -1.4% -0.8% -1.70% -2.70% -4% -7.4% -7.50% -8% -12% Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18
RBI keeps repo rate unchanged at 6% for the fourth time; Central bank's stance signals positive change CRR % Repo % Rev Repo % SLR %(RHS) 8.5 23.0 7.5 22.0 6.5 21.0 5.5 20.0 4.5 19.0 3.5 18.0 Jun-15 Sep-15 Jan-16 May-16 Sep-16 Dec-16 Apr-17 Aug-17 Dec-17 Apr-18 • The RBI Governor Urjit Patel-led monetary policy committee (MPC) maintained status quo on repo rate - at 6% for the fourth time and retained its “neutral” stance, in its first bi-monthly policy review of 2018-19. The policy decision was in line with the market expectations. Reverse repo was kept unchanged at 5.75%. No changes were made to cash reserve ratio (CRR) and statutory liquidity ratio (SLR), which stand at 4% and 19.5%. The statement was more dovish than expected particularly because of the cut in inflation forecasts. Five on the six-member monetary policy committee voted for the decision, with one seeking a hike. • The RBI revised CPI inflation projection for 2018-19 to 4.7-5.1% in the first half of the financial year and 4.4% in the second half, including the HRA impact for central government employees, with risks tilted to the upside. • The RBI believes that the Indian economy is poised to run to a fast growth lane, with GDP set to expand 7.4% in 2018-19, from the projected 6.6% in 2017-18, amid strong investment revival signs. The RBI warned, however, that even as global growth and trade have strengthened, rising trade protectionism and market volatility could derail the global recovery.
Glo lobal & Currency Markets - Revie iew
Indian Bond yields moved up above 7% Dollar index movement in the past 1 since Nov17 month Germany - 10 Year US - 10 Year India - 10 Year (RHS) DXY Index 3.5 9.0 91.0 3.0 90.5 8.0 2.5 90.0 2.0 7.0 1.5 89.5 6.0 1.0 89.0 0.5 5.0 0.0 88.5 Mar16 Jul16 Nov16 Mar17 Jul17 Nov17 Mar18 01-Mar-18 04-Mar-18 07-Mar-18 10-Mar-18 13-Mar-18 16-Mar-18 19-Mar-18 22-Mar-18 25-Mar-18 28-Mar-18 31-Mar-18 -0.5 4.0 • The 10 year US-India bond yield spread has now been reducing since Dec 2017; the spread has reduced from 496 bps in Dec 2017 to 457 bps in Mar 2018. • US bond yields inched down by 13 bps during the month on fears of a trade war and its impact on growth.
Emerging markets bond yields 10 Year Gsec Yield Jan-18 Feb-18 Mar-18 3m change 2015 end 2016 end 2017 end Sep-17 Oct-17 Nov-17 Dec-17 (% mth end) in bps Brazil 16.5 11.4 10.2 9.7 9.9 10.4 10.2 9.7 9.6 9.5 -76 • Brazil, South Africa China 2.8 3.0 3.9 3.6 3.9 3.9 3.9 3.9 3.9 3.8 -14 and Russia saw the India 7.8 6.4 7.1 6.7 6.9 7.1 7.1 7.6 7.9 7.3 -7 sharpest fall in bond Indonesia 8.7 7.9 6.3 6.5 6.8 6.5 6.3 6.3 6.6 6.7 36 yields in last three Korea 2.1 2.1 2.5 2.4 2.6 2.5 2.5 2.8 2.7 2.6 16 months Malaysia 4.2 4.2 3.9 3.9 4.0 3.9 3.9 3.9 4.0 4.0 2 • While, Indonesia, Philippines 3.9 4.6 5.7 4.6 4.8 5.7 5.7 6.2 6.7 6.0 30 Philippines and Korea Russia 9.6 8.4 7.6 7.6 7.6 7.6 7.6 7.2 7.0 7.1 -54 saw the highest rise in bond yields in last South Africa 9.8 8.9 8.6 8.6 9.1 9.3 8.6 8.5 8.1 8.0 -62 three months Taiwan 1.0 1.2 0.9 1.0 1.0 1.0 0.9 1.0 1.0 1.0 5 Thailand 2.5 2.6 2.4 2.3 2.4 2.4 2.4 2.4 2.4 2.4 9
Debt Markets - Outlook
Key Variables - Outlook & Impact on Benchmark Rates Key Variables Short Term Long Term Inflation Rupee Credit Demand RBI Policy Global Event Risk Liquidity
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