July 2015 | srei
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July 2015

Highlights of RBI’s Third Bi-Monthly Monetary Policy Review

  • Policy repo rate under the liquidity adjustment facility (LAF) has been kept unchanged at 7.25%.
  • Consequently, the reverse repo rate under the LAF will remain unchanged at 6.25%, and the marginal standing facility (MSF) rate and the Bank Rate will remain at 8.25%.
  • The cash reserve ratio (CRR) of scheduled banks has been kept unchanged at 4.0% of net demand and time liability (NDTL).
  • Liquidity will continue to be provided under overnight repos at 0.25% of bank-wise NDTL at the LAF repo rate and at 0.75% of NDTL under 14-day term repos and longer term repos.
  • Daily variable rate repos and reverse repos will be continued to smooth liquidity.\


Indian Economy Review

India’s growth story remains optimistic

Major global institutions remain optimistic about India’s growth prospects. The International Monetary Fund (IMF) reaffirmed its growth forecast for India in its latest World Economic Outlook (WEO), pegging growth at 7.5% each in 2015 and 2016. Asian Development Bank (ADB) retained India’s GDP growth projection for 2015-16 at 7.8%, but cautioned that delay in reforms relating to land acquisition and Goods and Services Tax (GST) could hamper growth. Organisation for Economic Co-operation and Development (OECD) stated that India is seeing "stable growth momentum" even as economic activities are expected to slow down in China, the US and many other major economies. Back home, RBI Governor Raghuram Rajan said the economy is on the recovery path with signs of capital investments picking up. Meanwhile, according to a World Bank report, India’s GDP currently stands at $2.07 trillion. India’s per capita income rose 9.7% to $1,631 in 2014 from $1,487 in the previous year.

Domestic GDP Growth
Source: CSO Estimates


Retail inflation up slightly in June, but wholesale prices down

India’s Consumer Price Index-based inflation rose to 5.40% in June, the highest level in seven months, from 5.01% in May, due to an increase in food inflation. However, the wholesale inflation was -2.40% in June compared with - July 2015 3 2.36% in May and 5.66% for the same period last year. Meanwhile, the Central Board of Direct Taxes (CBDT) raised the cost inflation index by 5.57% to 1081 for fiscal year 2016.

Market volatility weighs on the government’s divestment plans

Department of Disinvestment told the Ministry of Finance (MoF) that it may be able to raise only about Rs 30,000 crore this fiscal given volatile market conditions. The government has begun tapping new markets such as Australia, Japan and Canada to attract their cash-rich pension and sovereign wealth funds to invest in PSU stake sales. It also plans to raise about Rs 18,000-19,000 crore as it has initiated the process of selling minority stake in equity PSUs as well as follow-on offer of the Central Public Sector Enterprises Exchange Traded Fund (CPSE ETF). The government raised over Rs 1,600 crore by selling 5% stake in Power Finance Corporation.

Major developments in the month

India will contribute $18 billion to the $100 billion foreign-exchange reserves pool that is being set up by five BRICS nations to help each other "in case of any problems with dollar liquidity".

India and the US signed an agreement to implement Foreign Account Tax Compliance Act (FATCA) that will facilitate exchange of information between the two countries from October 1 in a bid to check offshore tax evasion.

Prime Minister Modi launched the Digital India programme, with corporates pledging investment commitments worth Rs 4.5 lakh crore for the initiative. He also launched the National Skill Development Mission to train 400 million Indians by 2022. Further, he launched an improved version of Employees' State Insurance Corporation (ESIC) scheme and the national career service portal.

The government announced highway projects worth $93 billion, including the flagship project the National Highways Building Project. It will infuse Rs 70,000 crore in public sector banks over four years to address the issue of bad loans.

The government notified September 30, 2015 as the date on or before which a person may make a declaration in respect of an undisclosed asset located outside India. It plans to spend Rs 50,000 crore over the next five years under the Pradhan Mantri Krishi Sinchai Yojana (PMKSY) with an eye on improving farm productivity. It is also planning to launch an exclusive all-in-one insurance product for the farming community.

The government has allowed foreign investors to conduct business through more than one joint venture in India. It has also allowed seven state-owned entities to raise Rs 40,000 crore through tax-free bonds in the current fiscal. It clarified that service charges collected and retained by restaurants are not 'service tax' imposed by the government.

Matters that got the Cabinet’s nod include:

  • Proposal for redevelopment of railway stations on "as is where is" basis by inviting open bids from interested parties who will submit their designs and business ideas.
  • Proposal to extend a 3% interest subvention scheme for banks in order to ensure farmers receive loans of up to Rs 3 lakh at 7% per annum.
  • Amendments to the bill to launch GST and setting up of the proposed Rs 20,000 crore National Investment and Infrastructure Fund.
  • Proposal to allow all categories of foreign investment in alternative investment funds (AIFs) by bringing changes to the foreign exchange regulations.

The government notified the norms of composite caps for simplifying the FDI policy. All sectors except banking and defence can now get up to 49% foreign investment through the automatic route. The MoF said foreign shareholding in the parent companies of insurance ventures will not be counted as overseas ownership for computation of FDI in the ventures. The government capped the subsidy it will pay on kerosene at Rs 12 per litre while deciding to foot the entire bill on domestic cooking gas. It hiked the National Floor Level Minimum Wage from Rs 137 a day to Rs 160 per day, with effect from July 1, 2015.

The government brought 39 more drugs used to treat various diseases such as diabetes and digestive disorders under price control. It extended the special incentive package for electronic manufacturing in the country by five years. The Defence Ministry came up with a new set of rules for exports for private and public sectors that does away with the controversial ‘ultimate end user’ certificate clause. The Corporate Affairs Ministry eased the norms requiring Indian companies with overseas subsidiaries to file audited financial statements of such foreign subsidiaries with the Registrar of Companies. Government asked the Directorate General of Civil Aviation to follow a normative approach on airport charges and do away with cost-plus methods.

Key economic indicators released in the month

India’s annual industrial output growth slowed to 2.7% in May from a downwardly revised 3.36% in April. Core sector growth slipped to 2.4% in June after hitting a six-month high of 4.4% in May mainly on account of contraction in crude oil and natural gas production. The government’s fiscal deficit reached Rs 2.87 lakh crore during April-June or 51.6% of the target of Rs 5.56 lakh crore for the current fiscal. Trade deficit contracted to $10.9 billion in June from $11.8 billion in the same month a year ago. Exports fell 15.82% to $22.28 billion in June from $26.47 billion in the same month last year. Imports were 13.4% lower at $33.11 billion compared with $38.24 billion last year. The government’s indirect tax collections rose to Rs 57,357 crore in June this year, up 33.3% from the same period last year. Collections surged 37.4% to Rs 1.54 lakh crore during April-June compared to the same period last year.

India’s manufacturing Purchasing Managers’ Index (PMI) fell to 51.3 in June from 52.6 in May, while services PMI fell to a 15-month low of 47.7 points in June from 49.6 in May. The composite PMI contracted for the first time in 14 months to 49.2 points in June from 51.2 in May. SBI Composite Index for July 2015 declined sharply to 49.7 (low decline) from 53.2 (moderate growth) in June 2015.

Among regulatory developments

The RBI has allowed Mass Transit System operators to issue pre-paid cards. It said companies can issue shares under Employee Stock Option Schemes (ESOP) to overseas staff under the sectoral cap for foreign investment. Further, the central bank clarified that the restriction on investments with less than three years residual maturity will not be applicable to investment by foreign portfolio investors (FPIs) in security receipts, issued by asset reconstruction companies (ARCs).

Competition Commission of India (CCI) revised its Combination Regulations in order to make mergers and acquisitions (M&A) filing requirements simpler and more transparent. The Department of Telecommunications (DoT) plans to conduct a special audit of quality of service parameters across the country in the wake of rise in call drops. Food Safety and Standards Authority of India (FSSAI) came out with quality and safety norms to regulate food or health supplements, nutraceuticals, functional and dietary foods and seeks public comments on the same.

Indicators Current Previous
Monthly WPI Inflation -2.40% (June 2015) -2.36% (May 2015)
Industrial Growth 2.7% (May 2015) 3.4% (April 2015)
Exports $66.69bn (April-June 2015) $80.11bn (April-June 2014)
Imports $98.92 bn (April-June 2015) $113.20 bn (April-June 2014)
Trade Deficit -$32.23bn (April-June 2015) -$33.08 bn (April-June 2014)
Gross Tax Collections Rs 119,781cr (April-June 2015) Rs 98,512cr (April-June 2014)

IIP Growth

IIP Growth

  • India’s annual industrial output growth slowed to 2.7% in May from a downwardly revised 3.36% in April.

IIP-Core Sector Growth

Core IIP Growth

  • India’s Core sector growth slipped to 2.4% in June after hitting a six-month high of 4.4% in May mainly on account of contraction in crude oil and natural gas production.

Fiscal Deficit

Fiscal Deficit

  • India's fiscal deficit reached Rs 2.87 lakh crore during April-June or 51.6% of the target of Rs 5.56 lakh crore for the current fiscal.

Global Economy Review

IMF lowers 2015 growth outlook

The International Monetary Fund (IMF), in its World Economic Outlook, lowered the global economic growth forecast for 2015 to 3.3% from its earlier forecast of 3.5%, citing weak Q1 growth in the US. However, it maintained 3.8% growth forecast for 2016.

US economy gathers speed

After a weak start to 2015, the US economic growth improved to 2.3% year-on-year (YoY) in Q2 2015 from 0.6% (upward revision from a previously reported 0.2% contraction) in Q1. The US Federal Reserve (Fed) indicated that the economy was on a stronger footing and noted improvement in the job market, housing and consumer spending. The central bank, however, kept interest rate at close to zero and did not give a clear indication of a rise.

World GDP Growth

World GDP Growth

Major Indicators Current Previous Major Global Central Bank Major Global Central Bank
US GDP 2.3% Q2 2015 0.6% Q1 2015 US Fed Funds Rate 0-0.25%
US unemployment 5.3% July 2015 5.3% June 2015 Bank of England 0.50%
UK GDP 2.6% Q2 2015 2.9% Q1 2015 European Central Bank 0.05%
Euro Zone GDP 1% Q1 2015 0.9% Q4 2014 Japan Benchmark Rate 0-0.10%
Japan GDP 3.9% Q1 2015 1.5% Q4 2014    
China GDP 7.0% Q1 2015 7.0% Q1 2015    
Singapore’s GDP 1.7% Q2 2015 2.8% Q1 2015    

Key US economic indicators

  • The US budget deficit shrank by $52 billion during the first nine months of fiscal 2015 from a year ago.
  • The trade deficit increased 2.9% to $41.9 billion in May, up from a deficit of $40.7 billion in April.
  • Industrial output climbed 0.3% in June after a 0.2% decline in May. The capacity utilisation rate ticked up to 78.4% in June from an upwardly revised 78.2% in the previous month.
  • Retail sales slipped 0.3% in June, the weakest reading since February, following May's downwardly revised 1% rise.
  • Consumer Price Index (CPI) inflation rate rose 0.3% in June after increasing 0.4% in May.
  • The US Employment Cost Index edged up 0.2% in the second quarter, the smallest gain since the series started in the second quarter of 1982, and following an unrevised 0.7% increase in the first quarter.
  • Pending home sales unexpectedly fell 1.8% in June, the first drop this year, after a revised 0.6% increase in May. New home sales declined 6.8% in June to a seasonally adjusted annual rate of 482,000 units, the lowest level since November 2014, following May’s downwardly revised 517,000 units.


Eurozone outlook gloomy; Greece averts exit from the bloc

The IMF warned that the eurozone economy is vulnerable to negative shocks in the medium term amid Greece’s debt concerns and high unemployment, and may need to extend its money-printing program for longer than planned. However, it said that the region is recovering on the back of falling crude oil price, weaker euro and action taken by the European Central Bank (ECB). It predicted region’s growth to improve to 1.7% in 2016 from 1.5% in 2015. In an important development in the region, fear about Greece’s exit from the eurozone was abated after the debt-ridden country and the eurozone leaders reached an agreement over 86 billion euro bailout.

Key Eurozone economic indicators:

  • Trade surplus fell to a seasonally adjusted 21.2 billion euros in May from 23.9 billion euros in April.
  • Industrial production declined 0.4% in May following a stable reading in April.
  • Annual inflation came in at 0.2% in July, the same as in June.
  • Retail sales climbed 0.2% month-on-month in May following a 0.7% rise in April.
  • The seasonally-adjusted unemployment rate was 11.1% in June, stable compared with May, and down from 11.6% in June 2014.

UK economy gathers pace in Q2

The UK’s economic growth accelerated to 0.7% quarter on quarter in Q2 2015 following 0.4% growth in the preceding quarter. The economy expanded 2.6% YoY in Q2 compared to 2.9% in Q1. Bank of England, in the July meeting, left its key interest rate unchanged at a record low of 0.5% and kept the size of its bond purchases under the quantitative easing (QE) program at 375 billion pounds. The meeting’s minutes showed that the Greek debt crisis could delay the interest rate hike in future.

Key UK economic indicators:

  • The visible trade deficit shrank to 8 billion pounds in May from 9.4 billion pounds in April.
  • Industrial production rose by a seasonally adjusted 0.4% in May after increasing 0.3% in the preceding month.
  • Consumer prices fell to zero in June from 0.1% in May.
  • The UK’s Office for National Statistics says 1.85 million people were unemployed during March-May, an increase of 15,000 from the previous quarter. The unemployment rate during March-May was flat at 5.6% compared to 5.5% during February-April.


China's GDP grew 7.0% in Q2

Amid slowdown concerns, China’s economy expanded by 7% YoY in Q2, matching growth of the previous quarter, as the recently announced stimulus measures supported the economy. The government vowed to step up targeted adjustments to the economic policy to boost stable growth. IMF Head Christine Lagarde backed Chinese efforts to stem recent market volatility and said that China’s economy can withstand market turmoil. China aims to raise $160 billion in bonds to fund its infrastructure projects over the next few years.

Key Chinese economic indicators

  • The trade surplus came in at $46.5 billion in June, down from May's $59.5 billion. Exports grew 2.8% in June from a year ago after a 2.5% drop in May, while imports fell 6.1% in June from a year earlier following a 17.6% decline in May.
  • Industrial output rose 6.8% YoY in June, an improvement of just under 1% from the previous month.
  • Retail sales grew 10.6% in June from a year earlier, compared with 10.1% growth in May.
  • Consumer Price Index (CPI) rose 1.4% in June from a year earlier and following a 1.2% rise in May.
  • China's official manufacturing PMI was 50.0 in July compared with 50.2 in June. Services PMI was 53.9 in July, compared with 53.8 in June.

Bank of Japan cuts economic growth

Japan’s central bank, Bank of Japan (BoJ), lowered the country’s economic growth to 1.7% for fiscal year to March 2016 from its earlier projection of 2%. BoJ also lowered the inflation forecast to 0.7% for the fiscal from its earlier estimate of 0.8%. The central bank, however, withheld fresh stimulus, convinced that an expected pick-up in consumption will help accelerate inflation toward its 2% target.

Key Japanese economic indicators:

  • Japan posted a merchandise trade deficit of 69 billion yen in June compared with a deficit of 217.2 billion yen in May.
  • Industrial production rose 0.8% from the previous month in June compared with a 2.1% decline in May.
  • Retail sales rose 0.9% in the year to June compared with a 3% rise in May.
  • The core consumer price index rose 0.1% in June from a year earlier, flat from the previous month’s reading.
  • The unemployment rate rose to 3.4% in June, up 0.1% from May.

Singapore’s economy weakens in Q2

Singapore’s economy shrank 4.6% annualised in Q2 from the preceding quarter and compared with 4.2% growth in Q1 due to a sharp hit in the manufacturing sector. The country’s manufacturing sector contracted for the fifth straight month in June, with industrial output down 4.4% YoY following 2.3% drop in the previous month. Among important indicators, the unemployment rate rose to 2% in June, up from 1.8% in March. The CPI fell 0.3% YoY in June, slightly slower than the previous month's 0.4% dip.

Domestic Fixed Income Review

Domestic G-sec Yield

6 Month LIBOR

Interbank call money rates moved in the range of 6.35-7.50% in July. Liquidity conditions were comfortable for most parts of the month mainly due to inflows from the month-end government spending and the repo auctions conducted by the Reserve Bank of India (RBI). Noting ample funds lying unutilised with banks, the RBI conducted regular reverse repo auctions to keep the call money rates from dipping too low. Outflows related to payment of state development bonds also kept some upward pressure on the rates. Meanwhile, the RBI announced that it will introduce Straight Through Processing (STP) with effect from August 3 for fixed rate repo, reverse repo and MSF operations in a bid to smoothen liquidity management.

Government security prices (gilts) moved in a narrow range in July. The yield on the 10-year benchmark, the 7.72%, 2025 paper, ended at 7.81% on July 31, 2015 compared with 7.86% on June 30, 2015. Gilts were buoyed by a fall in global crude oil prices and recent pick-up in the southwest monsoon which supported the view that the RBI may cut interest rates in the coming months. Sentiments strengthened on news of a debt deal between Greece and its creditors. Prices also rose on comments made by RBI Governor Raghuram Rajan that the RBI is committed to the expansion of gilt investment limits for FIIs and that the central bank has decided to discuss the issue with SEBI twice a year. Bonds advanced further as the proposed changes in the Indian Financial Code by the Ministry of Finance (MoF) led to hopes of faster interest rate cuts in future. The draft note, which has been released for comments, recommended setting up a seven-member monetary policy committee, out of which four members will be appointed by the Centre.

Further gain in prices was, however, arrested owing to the rupee’s intermittent weakness against the dollar and as market players trimmed their positions to make room for fresh supply of bonds in some weekly auctions. Gilts were also affected as the domestic retail inflation figures for June diminished hopes of an interest rate cut by the RBI in the upcoming policy meeting. Bonds further fell on caution ahead of the US Federal Open Markets Committee meeting.

Major regulatory developments in the month

Among major developments, the government plans to issue sovereign gold bonds worth Rs 15,000 crore in the second half of the current fiscal. It is also planning a Bond Guarantee Corporation of India for corporate bonds, which will have a net worth of Rs 5,000 crore. The RBI is working with the MoF on a new platform for settlement of government bonds, on the lines of world’s largest securities settlement system ‘Euroclear’. SEBI brought out regulations on the issue and listing of debt securities issued by municipalities. The BSE and the NSE introduced new interest rate futures (IRFs) contract on July 31 with the newly launched 6-year and 13-year government bonds. The BSE said the mechanism would be in place in the next six-nine months for public offer of government bonds. Clearing Corporation of India decided to launch a trading platform for interest rate swaps in August.

On the banking front, the RBI signed a special currency swap agreement with the Central Bank of Sri Lanka. Under the arrangement, the latter can draw up to $1.1 bn for a maximum period of six months. It directed banks to ensure that their overall direct lending to farmers should not fall below the average of the last three years, as the government has expressed concerns over impact of recent adverse weather conditions. The RBI stated that a credit card account will be treated as a non-performing asset (NPA) if the minimum amount due is not repaid fully within 90 days from the due date mentioned in the card statement. Further, it allowed banks, including cooperative banks, which still do not have their own debit cards to issue such cards in collaboration with banks that have such a facility. The RBI said the concurrent audit at bank branches should cover at least half of their advances and deposits. It also said banks can carry out the business of factoring departmentally, without obtaining its prior approval, subject to conditions.


Fixed Income Indicators

Rates & Liquidity

  31-Jul-15 1 Week Ago 1 Month Ago
Repo 7.25 7.25 7.50
Reverse Repo 6.25 6.25 6.50
CRR 4.00 4.00 4.00
LAF o/s Repo (Rscr) 2224 3160 8061
LAF o/s Rev Repo (Rscr) 4182 10893 19133

Overnight                                         Rate(%)

  31-Jul-15 1 Week Ago 1 Month Ago
Mibor 7.20 7.20 7.28
Call 7.10 7.20 7.20
CBLO 7.05 6.80 7.20
OIS 1Y 7.44 7.49 7.54
OIS 5Y 7.13 7.21 7.25

CDs                                                             Yield(%)

  31-Jul-15 1 Week Ago 1 Month Ago
1-Month 7.29 7.36 7.69
3-Month 7.50 7.58 7.68
6-Month 7.71 7.78 7.86
1-Year 7.91 7.97 8.06

CPs                                                   Yield(%)

  31-Jul-15 1 Week Ago 1 Month Ago
1-Month 7.50 7.70 7.70
3-Month 7.77 7.93 7.95
6-Month 8.10 8.30 8.35
1-Year 8.47 8.54 8.56

Short Term Bonds                                        Yield(%)

  31-Jul-15 1 Week Ago 1 Month Ago
1 Y G-Sec 7.59 7.59 7.63
1 Y AAA 8.19 8.15 8.35
1 Y AA 8.71 8.67 8.87
2 Y G-Sec 7.81 7.78 7.80
2 Y AAA 8.20 8.20 8.38
2 Y AA 8.67 8.67 8.85

Long Term Bonds                          Yield(%)

  31-Jul-15 1 Week Ago 1 Month Ago
5 Y G-Sec 7.94 8.00 8.06
5 Y AAA 8.45 8.51 8.64
5 Y AA 9.10 9.16 9.29
10 Y G-Sec 7.81 7.83 7.86
10 Y AAA 8.41 8.48 8.58
10 Y AA 9.23 9.30 9.40

Top 5 Graded G Secs                                   Yield(%)

  31-Jul-15 1 Week Ago 1 Month Ago
08.40% CGL 2024 7.81 7.82 7.86
08.60% CGL 2028 7.98 7.98 8.04
08.27% CGL 2020 7.97 7.99 8.07
08.15% GS 2026 7.94 7.96 8.07
08.27% CGL 2020 7.94 7.95 8.06


  31-Jun-15 1 Week Ago 1 Month Ago
USD/INR 64.13 64.04 63.65
EURO/INR 99.84 99.10 100.12
GBP/INR 70.16 70.12 71.20
100 JPY/INR 51.55 51.56 52.07
USD/EURO 0.91 0.91 0.90

 10 Year G-sec Movement

10 Year G-sec movement


Corporate Bond Yield


Corporate AAA, AA Bond Spreads


Economic Events Calendar

August 11, 2015
  • US Productivity and Costs, Q2 2015
  • US Wholesale Trade & Inventories, June
  • Eurozone ZEW Survey Expectations, August
  • China’s Retail Sales, July
  • China’s Industrial Production, July
  • Bank of Japan Monetary Policy Review
  • Japan’s Tertiary Index, June
  August 27, 2015
  • US GDP, Q2 2015 (Preliminary)
  • US Pending Home Sales Index,
  • July
  • US Personal Consumption, Q2 2015
  • Japan’s Consumer Price Index, July
  • Japan’s Unemployment Rate, July
August 12, 2015
  • US Treasury Budget, July
  • Eurozone Industrial Production, June
  • UK ILO Unemployment Rate, June
  • UK Claimant Count Rate, July
  • Japan’s Machine Orders, June
  • India’s Consumer Price Index Inflation, July
  • India’s index of Industrial Production, June
  • India’s CPI for Combined, Rural, and Urban, July
  August 28, 2015
  • US University of Michigan Confidence, August
  • US Personal Income and Outlays, July
  • US Consumer Sentiment, August
  • Eurozone Economic Sentiment, August
  • UK GDP, Q2 2015 (Revised)
  • UK Personal & Spending, July
  • UK GfK Consumer Confidence, August
  • UK Imports & Exports, Q2 2015
  • UK Nationwide House Price Index, August
  • India’s GDP Estimate, April-June
August 13, 2015
  • US University of Michigan Confidence, August
  • US Producer Price Index – Final Demand, July
  • US Industrial Production, Capacity Utilization, July
  • US Consumer Sentiment, August
  • Eurozone GDP, Q2 2015
  • Eurozone Consumer Price Index, July
  • India’s Wholesale Price Index Inflation, July
  September 1, 2015
  • US Markit Manufacturing PMI, August
  • US ISM Manufacturing, August
  • Eurozone Markit Manufacturing PMI, August
  • Eurozone Unemployment Rate, July
  • UK CIPS/PMI Manufacturing Index, August
  • UK Consumer Credit, July
  • India’s Manufacturing PMI, August
August 17, 2015
  • US NAHB Housing Market Index, August
  • US Empire Manufacturing (Mfg.), August
  • US Treasury International Capital. June
  • Eurozone Trade Balance, June
  September 2, 2015
  • US Beige Book
  • US ADP Employment Report, August
  • US Productivity and Costs, Q2 2015
  • US Factory Orders, July
  • Eurozone Producer Price Index, July
  • UK Construction PMI, August
  • China’s Composite PMI, August
  • Japan’s Composite PMI, August
August 18, 2015
  • US Building Permits, July
  • US Housing Starts, July
  • UK Consumer Price Index, July
  • UK Producer Price Index, July
  • UK Retail Price Index, July
  • Japan’s All Industry Index, June
  • Japan’s Trade Balance, July
  September 3, 2015
  • US ISM Non-Mfg Index, August
  • US Markit Services & Composite PMI Index, August
  • US International Trade, July
  • European Central Bank Monetary Policy Review
  • Eurozone Retail Sales, July
  • Eurozone Composite PMI, August
  • UK Markit/CIPS Composite & Services PMI, August
  • India’s Services PMI, August
August 19, 2015
  • US Consumer Price Index, July
  • US Federal Open Market Committee (FMOC) Minutes
  • Eurozone Construction Output, June
  September 4, 2015
  • US Employment Situation, August
  • Eurozone GDP, Q2 2015 (Preliminary)
August 20 , 2015
  • US Philadelphia Fed Business Outlook Survey, August
  • US Existing Home Sales, July
  • US Leading Indicators, July
  • UK Retail Sales July
  • India’s CPI for rural and farm labourers, July
  September 7, 2015
  • Eurozone Sentix Investor Confidence, September
August 21, 2015
  • Eurozone Consumer Confidence Flash, August
  September 8, 2015
  • US Consumer Credit, July
  • China’s Consumer Price Index, August
  • China’s Producer Price Index, August
August 24, 2015
  • US Markit Manufacturing PMI, August
  • US Chicago Fed National Activity Index, July
  • Eurozone Markit Composite & Services PMI, August
  September 9, 2015
  • UK NIESR GDP Estimate, August
  • UK Industrial Production, July
  • Japan’s Machine Orders, July
  • Japan’s Producer Price Index, August
August 25, 2015
  • US FHFA House Price Index, June
  • US S&P Case-Shiller HPI, June.
  • US New Home Sales, July
  • US Consumer Confidence, August
  • UK Index of Services, June
  September 10, 2015
  • US Import and Export Prices, August
  • US Wholesale Trade, July
  • Bank of England (BOE) Monetary Policy Review
  • BoE Monetary Policy Minutes
  • UK RICS House Price Balance, August
August 26, 2015
  • US Markit Composite & Services PMI, August
  • US Durable Goods Orders, July

US Fixed Income Markets - Overview

The US treasury prices rose in July with the yield of the 10-year benchmark bond ending at 2.19% on July 31 compared to 2.34% on June 30. Among global cues, the safe haven appeal of treasuries was enhanced by volatility in Chinese equities and initial concerns that Greece may exit the eurozone. Weakness in domestic equities following some disappointing corporate earnings announcements and an intermittent decline in commodity prices drove treasury prices up. However, demand for bonds waned after the Chinese securities regulator ordered investors with large stakes to refrain from selling for six months in a bid to stabilise the Chinese market. News that Greece had secured bailout funds increased global risk appetite and prevented US bond prices from rising further. On the local front, some US economic data releases supported the view that the US central bank could hike interest rates as early as September, and weighed on prices.

US 10 Year Govt. Bond Yield


Learning Centre– Floating rate bonds

Unlike a regular bond in which the accrued interest is known, a floating rate bond or a floater does not have a fixed coupon amount.

The coupon interest is paid at pre-determined intervals of six months or one year. The amount of interest to be paid is based on a reference or base rate, which moves in the same direction as prevailing market interest rates. A spread is added to this reference rate so the interest earned is slightly higher than the reference rate.

Interest paid by floater = Reference rate + spread

If the reference rate is, say, 6.50% and the spread is set at 25 basis points, the interest paid by the floater would be 6.75% (6.50 + 0.25).

Investing in floaters has pros and cons. When the market interest rates rise, the reference rate rises. This puts a fixed rate bondholder, who earns a lower rate of interest, in a disadvantageous position than the holder of a floating rate bond. On the other hand, when the market interest rates fall, the reference rate adjusts downwards so the floater pays a lower rate of interest than a regular bond. This scenario is beneficial for fixed rate bondholders. Thus, to make gains from holding floaters, investors should place bets on the movement of short-term market interest rates.

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