April 2015 | srei
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April 2015

Indian Economy Review

Optimism about the Indian economy on the rise

Major international and domestic institutions are becoming more optimistic about the growth potential of the Indian economy due to the government’s initiatives of the past one year and a decline in inflation and crude oil prices. The World Bank has projected India’s economic growth at 7.5% for the current financial year FY16 and at 8% by 2017-18. It has stated that India continues to be the leading nation in remittances, pulling in $70 bn from its global migrant workforce in 2014. The International Monetary Fund (IMF) expects the Indian economy to grow 7.5% in 2015-16 and has said that the country’s growth could exceed China's in the current fiscal. According to Finance Minister Arun Jaitley, India has the potential to make a 9-10% growth rate “a new normal”. The Reserve Bank of India (RBI) estimates India’s GDP growth at 7.8% in the current fiscal, up from 7.5% in the previous fiscal. National Institution for Transforming India (NITI) Aayog Vice Chairman Arvind Panagariya expects the economy to grow 8-10% over the next 15 years. Meanwhile, on the issue of trimming the fiscal deficit, the government said that it will continue with subsidy reforms and bring down the fiscal deficit to 3.5% of the GDP by March 2017.

Moody's Investors Service has revised India's sovereign rating outlook to "positive" from "stable" on the back of the government’s actions, but has maintained the rating at the lowest investment grade. Fitch has retained India's credit outlook at 'stable', saying although "dynamism" is back in the economy translation of reforms into higher growth would depend on actual implementation.

Domestic GDP Growth


Inflation continues to ease

India’s Consumer Price Index (CPI) inflation eased to a three-month low of 5.17% in March vs 5.37% in February. The inflation rate based on the Wholesale Price Index (WPI) fell to a record low of -2.33% in March, on account of cheaper food and fuel products as well as manufactured items, from -2.06% in February. Meanwhile, the RBI said it is confident of meeting the 6% retail inflation target for January 2016.

Government’s divestment programme for the current fiscal starts on a strong note

The government sold its 5% stake in Rural Electrification Corporation through the offer for sale (OFS) route. The issue got oversubscribed by 5.5 times and raised Rs 1,550 cr. The government has shortlisted about a dozen public sector undertakings (PSUs) including IOC, National Fertilizers, MMTC, Hindustan Copper and ITDC for stake sale as a step towards achieving the current fiscal's disinvestment target. It is also exploring strategic sale and listing of subsidiaries of public sector firms to unlock value that can be used for further investments. Further, it may set up multiple exchange traded funds (ETFs) to sell its shares in state-run and private companies. The Disinvestment Department is also working on revamping the existing central public sector enterprise (CPSE) ETF to make it retail investor-friendly by reducing the minimum investment criteria.

Other major developments

Lok Sabha approved the 2015-16 Finance Bill mainly containing tax proposals for the manufacturing and service sectors for the current fiscal year. President Pranab Mukherjee gave his nod to the re-promulgated Land Acquisition Ordinance. The Union Cabinet approved the following in the month: Real Estate Development and Regulation Bill along with certain key amendments; the proposal to set up 100 smart cities and renew 500 across the country, allocating close to Rs 1 lakh crore for five years; amendments to the Companies Law that do away with a mandatory declaration by a firm before commencing business; a new policy on the testing requirement for discoveries in oil and gas blocks awarded under the New Exploration and Licensing Policy (NELP). Prime Minister Narendra Modi launched MUDRA (Micro Units Development and Refinance Agency) to fund and promote microfinance institutions. India and Japan signed an action plan that will see doubling of Japanese investments in Indian companies in the next five years and boost two-way trade. India and France signed 17 agreements, including one on the stalled nuclear project in Jaitapur, Maharashtra. The government extended the initial validity of industrial licences to seven years from three years. The government decided to continue its Rs 1,000 per minimum monthly pension scheme in perpetuity. The government launched a single form registration to incorporate a new business. The government clarified that minimum alternate tax (MAT) will not apply to capital gains on the sale of securities, royalty, technical service fees and interest income. It also clarified that foreign funds investing from countries with which India has a tax treaty will be exempt from paying MAT. The government unveiled the new Foreign Trade Policy for 2015-20 seeking to strengthen exports to $900 bn by 2019-20 while giving a boost to the Make in India initiative. The Centre clarified that all states will be eligible to get a share of the additional 1% tax proposed to be levied under the Goods and Services Tax. The Ministry of Finance permitted National Highways Authority of India to raise Rs 24,000 cr and Indian Railway Finance Corporation to raise Rs 6,000 crore through tax-free bonds. The Ministry of Coal prescribed timelines for the development of the recently auctioned coal mines. Overshooting the deadline may lead to phased deduction of bank guarantee. India Meteorological Department (IMD) said that southwest monsoon this year could be below normal, at 93% of the long-period average (LPA).

Key Regulatory developments in the month

The RBI modified rules to discourage exporters from using long-term export advances merely to refinance rupee loans, instead of executing long-term supply contracts for exports of goods. Telecom Regulatory Authority of India (TRAI) reduced ceiling tariffs for national roaming calls and SMS with effect from May 1, 2015, which will bring down the roaming tariffs for consumers. Competition Commission of India examined concerns of alleged anti-competitive practices arising from launch of data access plans allowing companies to offer applications for free. Directorate General of Civil Aviation (DGCA) permitted airlines to offer all their seats for pre-booking to passengers.

Economic indicators released in the month

India’s industrial production (IIP) grew 5% in February this year on the back of strong performance in manufacturing and mining sectors. In January, IIP was revised upwards to 2.8%. India’s core sector growth slumped to a 15-month low of -0.1% in March due to a steep decline in production of steel, cement and refinery products as against 1.4% growth in February. The country’s trade deficit rose slightly to $137.01 bn in FY15 from $135.8 bn a year ago. Exports were $23.95 bn in March as against $30.34 bn a year earlier, while imports fell 13.44% to $35.74 bn in March this year. India’s indirect tax collections for FY14-15 were Rs 5.46 lakh crore against the revised estimate of Rs 5.42 lakh crore and 9.9% over Rs 4.97 lakh crore in FY13-14, while direct tax collections during 2014-15 fell short of the target by about 1.26% to Rs 6.96 lakh crore. Foreign direct investment (FDI) in India jumped about 63% to $3.28 bn in February 2015 compared to $2.01 bn in the same month last year. India’s HSBC Manufacturing Purchasing Managers’ Index (PMI) rose to 52.1 points in March from 51.2 in February, while services PMI was 53.0 in March, down from 53.9 in February.

Indicators Current Previous
Monthly WPI Inflation -2.33% (March 2015) -2.06% (February 2015)
Industrial Growth 5.0% (February 2015) 2.8% (January 2015)
Exports $310.53bn (April 2014-March 2015) $314.42bn (April 2013-March 2014)
Imports $447.55bn (April 2014-March 2015) $450.21bn (April 2013-March 2014)
Trade Deficit -$137.01bn (April 2014-March 2015) -$135.80bn (April 2013-March 2014)
Gross Tax Collections Rs 9,54,953cr (April 2014-February 2015) Rs 8,92,007cr (April 2013-February 2014)

IIP Growth

IIP Growth

  • India’s industrial production (IIP) grew 5% in February this year on the back of strong performance in manufacturing and mining sectors. In January, IIP was revised upwards to 2.8%.

IIP-Core Sector Growth

Core IIP Growth

  • India’s core sector growth slumped to a 15-month low of -0.1% in March due to a steep decline in production of steel, cement and refinery products as against 1.4% growth in February.

Fiscal Deficit

Fiscal Deficit

  • India’s fiscal deficit stood at Rs 6.02 lakh cr in the first eleven months of FY’2015 against the revised estimate of Rs 5.13 lakh cr.

Global Economy Review

Economies to see uneven growth

Developed economies are expected to witness some improvement while growth in developing/ emerging economies is expected to be lower according to the International Monetary Fund (IMF). In its April outlook, the IMF has projected global economic growth at 3.5% in 2015, in line with its forecast in January 2015.

Q1 GDP growth in the US disappoints; rate hike uncertainty lingers

Uncertainty over interest rate hike persisted led by sluggish growth in the US in Q1 2015 and weaker-than-expected improvement in the job sector. The US GDP growth slowed to 0.2% year on year (YOY) in Q1 2015 after expanding 2.2% in Q4 2014. In its latest meeting, the US Federal Reserve (Fed) reiterated that it will raise the rates when it sees further improvement in the labour market and is confident that inflation will pick up over the medium term.

World GDP Growth

World GDP Growth

Major Indicators Current Previous Major Global Central Bank Major Global Central Bank
US GDP 0.2% Q1 2015 2.2% Q4 2014 US Fed Funds Rate 0-0.25%
US unemployment 5.4% Apr 2015 5.5% Mar 2015 Bank of England 0.50%
UK GDP 0.3% Q1 2015 0.6% Q4 2014 European Central Bank 0.05%
Euro Zone GDP 0.9% Q4 2014 0.8% Q3 2014 Japan Benchmark Rate 0-0.10%
Japan GDP 2.2% Q4 2014 -2.3% Q3 2014    
China GDP 7.0% Q1 2015 7.3% Q4 2014    
Singapore’s GDP 2.1% Q1 2015 2.1% Q4 2014    

Key US economic indicators

  • Import prices dropped 0.3% in March after a downwardly revised 0.2% gain in February. Export prices edged up 0.1% in March, the first increase since July, after slipping 0.2% in February.
  • Retail sales rose 0.9% in March following 0.5% fall in February.
  • Industrial production fell 0.6% in March after edging up 0.1% in February. The capacity utilisation rate fell to 78.4% in March from 79% in the previous month.
  • Non-farm payrolls rose to a seasonally adjusted 223,000 in April from a downwardly revised 85,000 in March.
  • Annual consumer price index (CPI) inflation came in at -0.1% in March vs zero in February..
  • On the housing front, the existing home sales increased 6.1% to an annual rate of 5.19 mn units in March, the highest level since September 2013, compared to February’s 4.89 mn units. The new home sales fell 11.4% to a seasonally adjusted annual rate of 481,000 in March compared to sales of 543,000 in February.


Eurozone poised for recovery

A recent stimulus measure announced to boost the flagging Eurozone economy is expected to show signs of revival. In an update, European Central Bank (ECB) President Mario Draghi said that the central bank’s stimulus program is proceeding smoothly and helping to propel a gradual economic recovery in the region. The banking regulator left its main benchmark interest rate unchanged at 0.05%. The IMF raised its growth forecast for the Eurozone to 1.5% in 2015 from 1.2% previously forecasted. For 2016, the growth forecast has been revised to 1.6% compared to 1.4% previously forecasted.

Key Eurozone economic indicators:

  • Retail sales declined 0.2% in February after rising 0.9% in January.
  • The trade balance registered a surplus of 20.3 bn euros in February compared to a surplus of 14.4 bn euros in the same month last year.
  • Industrial production increased 1.1% in February, compared to a 0.3% decline in January.
  • Annual inflation was -0.1% in March, up from -0.3% in February.

GDP growth in the UK slows in Q1

Economic growth in the UK slowed to 2.4% in Q1 2015 from 3% growth in Q4 2014 due to weak output in the construction, industrial and services sectors. The Bank of England kept interest rate on hold at 0.5% and kept its quantitative easing programme unchanged at 375 bn pounds. Minutes of the meeting announced later showed that the committee believed CPI inflation will fall into negative territory in the coming months and will remain low this year.

Key UK economic indicators:

  • The visible trade deficit increased to 10.34 bn pounds in February from 9.174 bn pounds in January.
  • Industrial production gained 0.1% in February following a 0.1% decline in January.
  • Retail sales fell 0.5% in March after a downwardly revised increase of 0.6% in February.
  • Consumer prices were unchanged in the year to March 2015 at 0%, the same rate as in the year to February 2015.
  • The UK’s ILO jobless rate came in at 5.6% in three months to February, down from 5.8% in September to November.


Growth outlook for East Asian countries trimmed

The World Bank posted bleak outlook for developing East Asia and warned of significant risks from global uncertainties including the potential impact from a strengthening dollar and higher US interest rates. The World Bank expects the region, which includes China, to grow 6.7% each in 2015 and 2016, down from earlier estimates of 6.9% and 6.8% respectively.

China posts weakest growth since 2009

China’s GDP growth slowed to 7.0% YOY in Q1 2015, the slowest quarterly pace in last six years, from 7.3% growth in the preceding quarter due to industrial slowdown and a weak housing market. The World Bank lowered the 2015 growth forecast to 7.1% from the earlier projection of 7.2%. To fight against the slowdown, China lowered the reserve requirement ratio (RRR) for all banks by 100 basis points to 18.5%. The central bank also lowered its benchmark one-year lending rate by 25 bps to 5.1% and the benchmark deposit rate by the same amount to 2.25%. Chinese Premier Li Keqiang said it will not be easy for China to grow its economy by 7% this year, but it ruled out currency devaluation to promote growth through exports.

Key Chinese economic indicators

  • China registered a trade surplus of $3.08 bn in March, sharply lower than February’s surplus reading of $60.6 bn.
  • Industrial output rose 5.6% YOY in March following 6.8% growth in the preceding month.
  • Annual consumer inflation for March came in at 1.4%, the same rate as in February..

Japan credit rating ebbed

Rating agency Fitch downgraded Japan’s credit rating by one notch to ‘A’ after the government failed to take steps in this fiscal year’s budget to offset a delay in a sales tax increase. The Bank of Japan lowered its inflation and growth outlook but refrained from expanding its stimulus programme. The central bank said GDP will expand 2.0% in the year to March 2016, while the inflation rate is seen at 0.8% as compared with previous estimates of 2.1% and 1.0% respectively.

Key Japanese economic indicators:

  • Trade balance stood at a surplus of 229.3 bn yen in March, the first surplus reading since Jun 2012, compared to a shortfall of 425 bn yen in February.
  • Industrial production declined 3.1% in February, compared to the initial estimate of a 3.4% decline, and compared to a rise of 3.7% in January.
  • Retail sales plunged 9.7% YOY in March compared with a 1.8% drop in February.

Singapore’s economy grows at steady pace

Singapore’s economy grew 2.1% YOY in Q1 2015, unchanged from the previous quarter. The Monetary Authority of Singapore (MAS) said in its bi-annual Macroeconomic Review that the economy would see patchy sectoral performance but stronger global growth will give an overall lift. Among key economic indicators, industrial production fell 5.5% YOY in March vs 3.3% drop in February. Non-oil domestic exports (NODX) rose 18.5% YOY in March following 9.7% decline in the preceding month.

Domestic Fixed Income Review

Domestic G-sec Yield

6 Month LIBOR

Interbank call money rates moved in the 6.60% to 8.50% range in April. Liquidity situation was comfortable in the system for most parts of the month as the Reserve Bank of India (RBI) conducted repo auctions regularly. While this kept the rates subdued, regular borrowings by banks to meet their daily funding requirements and outflows towards payment for gilts bought at a bond auction acted as a counter-force.

Indian government bond prices (gilts) fell and yield on the 10-year benchmark, the 8.40% 2024 paper, ended up at 7.86% on April 30, 2015, compared with 7.74% on March 31, 2015. There were a flurry of negatives for bonds beginning with the RBI not offering clues on the next rate cut when unveiling its monetary policy review on April 7; rising crude oil prices; position trimming to make room for fresh supply of bonds; a surging dollar; downbeat forecast on monsoon; and, the US Federal Open Market Committee policy keeping its key rate unchanged at near 0%. The FOMC said it will raise the rate when it sees further improvement in the labour market and sounded confident that inflation will pick up over the medium term.

Further decline in gilt prices was capped as a moderation in domestic consumer inflation figures for March increased expectations that the RBI would cut rates earlier than expected. Value buying by investors and China’s move to reduce reserve requirement ratio for its banks lifted prices of gilts. Clawback by the rupee against the dollar, a decline in US treasury yields and buying interest from public sector banks also helped. Gilts rose further as lower-than-expected US non-farm payrolls (released on April 3) meant fresh pushback on US interest rate hikes. Prices also received some support after credit rating agency Moody’s Investor Services upgraded India’s credit rating outlook from stable to positive, citing the government’s reform measures.

Major regulatory developments in the month

Government withdrew proposals to set up an independent public debt management agency (PDMA) and strip the RBI of authority to regulate government bonds. Finance secretary Rajiv Mehrishi said foreign institutional investor limits in government bonds are unlikely to be raised for the present. The government plans to introduce long-term bonds of 40 year maturity in the first half of the current fiscal with smaller issuances. The RBI has fixed ceiling for outstanding balance under the market stabilisation scheme (MSS) at Rs 50,000 crore for 2015-16. Its technical advisory committee discussed introduction of interest rate options, credit default swaps and repo in corporate bonds to encourage retail participation and deepen the markets. The central bank may relax certain rules guiding credit default swaps (CDS) by allowing more entities to sell the instrument that acts as insurance against default by bond issuers.

SG Padmanabhan, executive director of RBI, said India needs to proceed cautiously in fully opening up its debt markets to foreign investors, given the need to tackle issues such as large government borrowings and capital controls. The RBI decided to formulate a scheme for market making by primary dealers in semi-liquid and illiquid gilts. The central bank decided to ask large borrowers to issue more bonds to deepen the domestic capital markets and address concentration risks in the banking system. The RBI also announced measures to encourage participation of retail and mid-segment investors in the government securities market. It allowed companies to sell rupee-denominated bonds in overseas markets, and cross-holding of senior bonds of Indian banks subject to certain conditions. The RBI also permitted banks to invest in long-term infrastructure bonds issued by other banks in a bid to boost infrastructure investment. The Securities and Exchange Board of India (SEBI) permitted foreign investors to reinvest in government bonds on the same day. It also revamped securitisation trustee norms to deepen the securitisation market. According to SEBI data, fund raising through retail issuance of non-convertible debentures fell 77% to Rs 9,743 crore in 2014-15.

Among banking related developments, the RBI revised priority sector lending (PSL) norms, adding new segments such as micro, small and medium enterprise (MSME), social infrastructure and renewable energy under the ambit of priority sectors. Further, it allowed banks to consider the promoter of a company as a wilful defaulter even if the person is not a whole-time director of the firm. It permitted banks to offer differential interest rates on term deposits depending on whether they are with or without premature withdrawal facility. The RBI also announced amendments to regulations on capital adequacy and liquidity for lenders. It issued operational guidelines for Indian and foreign banks to set up shop in international financial service centres (IFSCs) and allowed banks to classify assets sold to a third party as non-performing assets for up to two years over and above the existing two-year deadline. The RBI also issued outsourcing guidelines for NBFCs and increased the scope of projects that can be financed under the NBFC-infrastructure debt fund route, by allowing funding of projects in the public-private partnership (PPP) segment without a tripartite agreement as well as through the non-PPP segment, as long as they have completed one year of operations. The central bank also allowed sole proprietor firms to open accounts in co-operative banks by submitting a single proof of their business.


Fixed Income Indicators

Rates & Liquidity

  30-Apr-15 1 Week Ago 1 Month Ago
Repo 7.50 7.50 7.75
Reverse Repo 6.50 6.50 6.50
CRR 4.00 4.00 4.00
LAF o/s Repo (Rscr) 19028 14147 21371
LAF o/s Rev Repo (Rscr) 6449 11612 32007

Overnight                                         Rate(%)

  30-Apr-15 1 Week Ago 1 Month Ago
Mibor 7.52 7.70 N.A.
Call 7.75 8.50 9.00
CBLO 7.86 7.75 9.26
OIS 1Y 7.59 7.57 7.51
OIS 5Y 7.19 7.07 7.05

CDs                                                             Yield(%)

  30-Apr-15 1 Week Ago 1 Month Ago
1-Month 8.22 8.02 7.93
3-Month 8.23 8.16 7.95
6-Month 8.30 8.24 8.19
1-Year 8.38 8.34 8.20

CPs                                                   Yield(%)

  30-Apr-15 1 Week Ago 1 Month Ago
1-Month 8.40 8.26 8.31
3-Month 8.58 8.50 8.22
6-Month 8.74 8.69 8.61
1-Year 8.91 8.85 8.64

Short Term Bonds                                        Yield(%)

  30-Apr-15 1 Week Ago 1 Month Ago
1 Y G-Sec 7.84 7.85 7.80
1 Y AAA 8.48 8.47 8.38
1 Y AA 9.00 8.99 8.90
2 Y G-Sec 7.87 7.77 7.83
2 Y AAA 8.08 7.96 8.23
2 Y AA 8.55 8.43 8.70

Long Term Bonds                          Yield(%)

  30-Apr-15 1 Week Ago 1 Month Ago
5 Y G-Sec 7,87 7.74 7.75
5 Y AAA 8.41 8.35 8.27
5 Y AA 9.06 9.00 8.92
10 Y G-Sec 7.86 7.76 7.74
10 Y AAA 8.35 8.30 8.25
10 Y AA 9.17 9.12 9.07

Top 5 Graded G Secs                                   Yield(%)

  30-Apr-15 1 Week Ago 1 Month Ago
08.40% CGL 2024 7.86 7.82 7.76
08.60% CGL 2028 7.87 7.82 7.76
08.27% CGL 2020 7.87 7.82 7.78
08.15% GS 2026 7.87 7.82 7.74
08.27% CGL 2020 7.92 7.87 7.84


  30-Apr-15 1 Week Ago 1 Month Ago
USD/INR 63.42 63.31 62.49
EURO/INR 70.53 67.66 67.51
GBP/INR 97.99 94.94 92.46
100 JPY/INR 53.53 52.75 52.11
USD/EURO 0.89 0.93 0.93


10 Year G-sec movement


Corporate Bond Yield


Corporate AAA, AA Bond Spreads


Economic Events Calendar

May 11, 2015
  • US Labor Market Conditions Index Change, April
  • Bank of England Monetary Policy Review
  May 28, 2015
  • US Pending Home Sales, April
  • US Nationwide House, May
  • China’s Leading Index, April
May 12, 2015
  • US Monthly Budget Statement
  • UK NIESR GDP Estimate, April
  • UK Industrial Production, March
  • India’s Index of Industrial Production, March
  • India’s CPI for Combined, Rural, and Urban, April
  May 29, 2015
  • US GDP, Q1 2015
  • US Personal Consumption, Q1 2015
  • US Chicago Purchasing Manager, May
  • US University of Michigan Confidence (Final), May
  • UK GDP (Preliminary), Q1 2015
  • UK GfK Consumer Confidence, May
  • UK Imports & Exports, Q1 2015
  • Japan’s Housing Starts, April
    UK Index of Services, March
    India’s GDP Annual Estimate (Preliminary), January-March and 2014-15\
  • India’s Government Finances, 2014-15
May 13, 2015
  • US Empire Manufacturing (Mfg.), April
  • US Industrial Production/Capacity Utilization, March
  • US Federal Reserve’s Beige Book
  • US NAHB Housing Market Index, April
  • European Central Bank Policy Review
  • Euro zone Trade Balance, February
  • UK Producer Price Index, March
  • Japan’s Industrial Production, February
  Jun 1, 2015
  • US Markit Manufacturing PMI, May
  • US ISM Manufacturing, May
  • US Personal Spending, April
  • Eurozone Markit Manufacturing PMI, May
  • UK Markit PMI Manufacturing, May
  • Japan’s Capital Spending, Q1 2015
  • China’s HSBC Manufacturing PMI, May
May 14, 2015
  • US Producer Price Index - Final Demand, April
  • UK RICS House Price Balance, April
    India’s Wholesale Price Index Inflation, April
  Jun 2, 2015
  • US Factory Orders, April
  • Eurozone Consumer Price Index, May
  • Eurozone Producer Price Index, April
  • UK Markit/CIPS Construction PMI, May
  • UK Net Consumer Credit, April
May 15, 2015
  • US University of Michigan Confidence, May
  • US Empire Manufacturing (Mfg.), May
  • US Industrial Production, Capacity Utilisation, April
  • Japan’s Producer Price Index, April
  Jun 3, 2015
  • US ISM Non-Mfg. Composite, May
  • US Markit Composite & Services PMI, May
  • US ADP Employment Change, May
  • US Trade Balance, April
  • Eurozone Markit Services & Composite PMI, May
  • Eurozone Unemployment Rate, April
  • Eurozone Retail Sales, April
  • UK Markit/CIPS Services & Composite PMI, May
  • China’s Non-manufacturing PMI, May
  • China’s HSBC Composite & Services PMI, May
    May 18
May 18, 2015
  • US NAHB Housing Market Index, May
  Jun 4, 2015
  • US Nonfarm Productivity, Q1 2015
  • Eurozone Markit Retail PMI, May
  • Bank of England Monetary Policy Review
May 19, 2015
  • US Housing Starts & Building Permits, April
  • Eurozone ZEW Survey Expectations, May
  • Eurozone Consumer Price Index, April
  • Eurozone Trade Balance, March
  • UK Consumer Price Index, May
  • UK Retail Price Index, April
  • UK Producer Price Index, April
  Jun 5, 2015
  • US Employment Report, May
  • Eurozone GDP (Preliminary), Q1 2015
  • UK BoE/GfK Inflation, May
  • UK Halifax House Prices, May
May 20, 2015
  • India’s CPI for Rural and Farm Labourers, April
  Jun 8, 2015
  • US Labor Market Conditions Index Change, May
  • US Consumer Credit, April
  • US Household Change, Q1 2015
  • Eurozone Sentix Investor Confidence, Jun
May 21, 2015
  • US Markit Manufacturing PMI, April
  • US New Home Sales, March
  • Euro zone Markit Manufacturing, Services & Composite PMI, April
  • UK Retail Sales, March
  • China’s HSBC Manufacturing PMI, April
  • Japan’s All Industry Index, February
  Jun 9, 2015
  • US Wholesale Inventories, April
  • UK Visible Trade Balance, April
May 22, 2015
  • US Consumer Price Index, April
  Jun 10, 2015
  • US Monthly Budget Statement, May
  • UK NIESR GDP Estimate, May
  • UK Industrial Production, April
  • Japan’s Producer Price Index, May
May 26, 2015
  • US Markit Composite, Services PMI, May
  • US FHFA House Price Index, March
  • US New Home Sales, April
  • US Durable Goods Orders, April
  • US Consumer Confidence Index, May
  • US Dallas Fed Mfg. Activity, May
  • US Durable Goods Orders, April
  • US House Price Purchase Index, Q1 2015

US Fixed Income Markets - Overview

The US Treasury prices fell in April with the yield of the 10-year benchmark bond rising from 1.93% on March 31 to 2.05% on April 30. Strong existing home sales and S&P/Case Shiller housing market data prompted fears of a sooner-than-expected interest rate hike in the US and weighed on Treasuries. The appeal for safe-haven treasury assets was dented by intermittent rise in equities due to strong corporate earnings announcements. However, downbeat gross domestic product data for the first quarter reversed losses. Other economic data such as industrial production, new home sales, non-farm payrolls and manufacturing PMI also failed to meet expectations and gave a boost to Treasury prices. Uncertainty about Greece’s future in the Eurozone and the US Fed’s decision to maintain an accommodative interest rate stance at its latest policy meeting further contributed to Treasury gains. tension in Yemen also boosted demand for safe-haven US bonds.

US 10 Year Govt. Bond Yield


Learning Centre– Demystifying government borrowings

Most governments borrow funds to execute their growth plans. India’s case is no different. In the Budget, the Centre stated that it would raise a sum of Rs 6 lakh crore from the market in financial year (FY) 2015-16. The Cabinet also makes an estimate of future fund inflows (via bond interest payments, for example) when making this announcement. The net borrowing figure after taking into consideration these inflows has been pegged at Rs 4.56 lakh crore for the current financial year.

The government’s borrowing plans are closely associated with the fiscal deficit target set for the year, which is expressed as a percentage of GDP. For FY2014-15, the government successfully met its target of 4.1%. As per the Cabinet’s fiscal consolidation roadmap, the fiscal deficit target has been set at 3.9% for FY2015-16 and 3.5% for 2016-17.

How does the government borrow?

The amount to be borrowed is facilitated through state and central government bond sales. State government bond sales are usually conducted twice a month and central government bond sales are conducted every week. A borrowing calendar detailing the quantum of funds that will be borrowed is released twice during the fiscal – for the April-September period and the October-March period.

How do these announcements affect the market’s appetite for debt?

The government periodically reassesses the underlying economic conditions during the fiscal and makes announcements that reflect its revised estimates. For example, if the government’s financial health improves owing to inflows that were not expected earlier, it may reduce the quantum of funds to be borrowed. This was the case for the second half of FY14-15. In general, the bond market perceives lower borrowing as a positive sign. This is taken to mean that the government's kitty is brimming with funds, and enhances the market's appetite for bonds. Similarly, returns to investors via open market bond purchase (commonly referred to as open market operations) also boost market sentiment. On the other hand, the market reacts negatively to higher-than-expected government borrowings as it prompts concerns about a higher fiscal burden. The oversupply of bonds brought into the market from higher borrowings causes bond prices to fall.

The market also reacts to announcements pertaining to the fiscal deficit. For example, bond yields hardened when the government revised its fiscal deficit target to 3.9% for 2015-16 from its earlier estimate of 3.6%.

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