June 2015 | srei
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June 2015

Indian Economy Review

India set to be the fastest growing economy this year

Improving macroeconomic fundamentals have driven India ahead of other major economies this year. The World Bank expects India to be the fastest-growing economy this year, growing at a rate of 7.5% against the previous forecast of 6.4%. According to the bank’s report, India has figured in the top five emerging economies for highest investment commitments in 2014. Organisation for Economic Co-operation and Development (OECD) expects the country to grow 7.3% in 2015 and 7.4% in 2016 on the back of revival in investments even as more reforms are needed to reduce uncertainties over taxation norms. Fitch is also optimistic about India and expects the country to grow at 7.8% in 2015, surpassing China's growth rate, and further accelerate to 8% and 8.1% in subsequent years. India’s Finance Minister Arun Jaitley said that the next couple of years will be "very critical" as the government plans to implement a series of reforms that will help India grow higher than the current 7-7.5%. NITI Aayog Vice Chairman Arvind Panagariya said India's growth rate is expected to accelerate to 8% in the current financial year and the economy will surpass $3 tn mark in less than five years.

Domestic GDP Growth


Inflation advanced moderately in May

India’s Consumer Price Index (CPI) rose to 5.01% in May from 4.87% in April. Wholesale Price Index (WPI)-based inflation was -2.36% in May, slightly higher than the 2.65% decline in price growth in April. CPI inflation was mainly led by a jump in consolidated inflation in fuel-related categories (fuel & light and transport & communication) to 3% in May from 1.9% April.

The matters that got the Cabinet's node include:

  • The revised cost estimate of Rs 81,459 cr for the dedicated freight corridor project.
  • The ‘Housing for All by 2022′ programme for slum rehabilitation in urban areas.
  • Interest-free loan worth Rs 6,000 cr to enable sugar mills pay arrears to farmers.
  • The Cabinet Committee on Economic Affairs (CCEA) raised the minimum support price (MSP) for paddy by Rs 50 to Rs 1,410 a quintal and by Rs 250-275 a quintal for pulses for 2015-16.

Other major developments in the month

Prime Minister Narendra Modi unveiled three mega flagship schemes – the Smart Cities Mission, Housing for All by 2022 and the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) – aimed at developing cities and towns as "new engines for growth". The Centre committed itself to spending Rs 4 lakh cr on these missions over the next five-six years. The government decided to invest Rs 8.5 lakh cr over the next five years to develop the nation's railway services. It also decided not to ease foreign direct investment (FDI) rules for electronic commerce.

The government proposed to issue gold bonds worth Rs 13,500 cr with a sovereign guarantee to divert investment demand for physical gold to a financial instrument. The Ministry of Finance (MoF) reiterated that only air-conditioned or air-heated restaurants are required to pay service tax. The Commerce and Industry Ministry notified that non-repatriable investments by non-resident Indians (NRIs), overseas citizens of India (OCIs) and persons of Indian origin (PIOs) will be treated as domestic investments and will not be subject to FDI caps. The government allowed private firms to accept deposits without offer circulars, and exempted government firms from managerial remuneration limits.

The government proposed income tax benefits for people making payments through credit or debit cards and doing away with transaction charges on purchase of petrol, gas and rail tickets with plastic money. Further, it exempted public sector defence firms from segment account reporting so that they do not have to reveal sensitive information in their books. It also exempted builders from obtaining prior green nod for construction of universities, school, college and hostel facilities provided they follow sustainable environment practices. The government withdrew a preference given to state-run companies and government entities that manufacture defence goods, a measure that will help attract private capital to the sector. It extended time for industrial units in three critically polluting sectors namely petrochemicals, oil refining, and thermal power to install pollution monitoring devices till September.

The government has asked public sector banks to draw up a five-year recapitalisation schedule to prepare them to lend support to its long-term growth plans. The MoF asked state-run banks to prepare a list of non-core assets that can be sold. It advised banks to lend at least six times more towards housing loan – up to Rs 25 lakh during the current fiscal. The government decided to notify a 'small time' compliance window for voluntary declaration of black money. The Income Tax Department put in motion a new plan which will ensure that any refund on tax paid is safely deposited in the personal bank account of the taxpayer as soon as it is processed and released. It also notified a new set of return forms for taxpayers to file their returns for the assessment year 2015-16.

The government will auction 10 coal mines in the third tranche with reserves of 858.19 mn tonnes for steel, cement as well as captive power plants. The process will be completed by August-end. Oil ministry asked refiners that owe billions of dollars to Iran for oil imports to build up dollar and euro balances to avoid downward pressure on the rupee if western powers and Tehran reach a final nuclear deal. Meanwhile, the Centre has decided to go slow on the sale of its stakes in companies this fiscal, and instead hit the market only when it is free from heavy volatility. Separately, the government plans to sell 3% stake in Bharat Petroleum this fiscal to raise around Rs 1,800 cr.

Key Regulatory developments in the month

The RBI allowed NRIs to invest in chit funds on a non-repatriation basis without any ceiling, a move that will encourage flow of capital into the country. It extended the window for overseas fundraising by airline companies and low-cost affordable housing projects until March 2016. The central bank concluded a memorandum of understanding (MoU) on “Supervisory Cooperation and Exchange of Supervisory Information” with Maldives Monetary Authority (MMA). The RBI extended the date for the public to exchange their pre-2005 banknotes until December 31, 2015.

Economic indicators released in the month

The trade deficit narrowed to $10.40 bn in May compared with $10.99 bn in April. Merchandise exports contracted by 20.19% to $22.34 bn in May compared with $28 bn a year ago in the same month. Imports fell down 16.52% to $32.75 bn in May from $39.23 bn same month last year. Current account deficit narrowed sharply to $1.3 bn, or 0.2% of the GDP, in the March quarter (as global oil prices slumped while foreign investments into the country remained robust) from $8.3 bn, or 1.6% of GDP in the previous quarter. Indirect tax collections surged 39% in April-May from the same period last year to Rs 96,128 cr. FDI inflows into India jumped 112% in April to $3.6 bn from $1.7 bn in the year-ago period, while foreign investment outflows from India plunged 81.38% to $1.75 bn during 2014-15 compared with $9.4 bn in 2013-14. According to RBI data, India’s external debt stood at $475.8 bn as of end-March, up 6.6% from a year earlier. HSBC manufacturing Purchasing Managers’ Index (PMI) rose to 52.6 points in May from 51.3 in April, while services PMI fell to 49.6 in May from 52.4 in April. The composite PMI index fell to a seven-month low of 51.2 in May from 52.5 in April.

Indicators Current Previous
Monthly WPI Inflation -2.36% (May 2015) -2.65% (April 2015)
Industrial Growth 4.1% (April 2015) 2.1% (March 2015)
Exports $44.40bn (April-May 2015) $53.63bn (April-May 2014)
Imports $65.80bn (April-May 2015) $74.95bn (April-May 2014)
Trade Deficit -$21.40bn (April-May 2015) -$21.32bn (April-May 2014)
Gross Tax Collections Rs 60,516cr (April-May 2015) Rs 55,722cr (April-May 2014)

IIP Growth

IIP Growth

  • India’s Index of Industrial Production advanced to 4.1% in April versus 2.1% growth in March and 3.7% growth in April 2014.

IIP-Core Sector Growth

Core IIP Growth

  • India’s core sector output in May rose to 4.4% versus a decline of 0.4% in April.

Fiscal Deficit

Fiscal Deficit

  • India's fiscal deficit during April-May touched Rs 2.08 lakh cr or 37.5% of the target for the 2015-16 fiscal year; the deficit was 45.3% during the same period a year ago.

Global Economy Review

Global economic outlook revised down

Key economic institutions have lowered their growth projections for the global economy citing slowdown in the pace of economic recovery. The Organisation for Economic Co-operation and Development (OECD) cut its 2015 growth forecast to 3.1% from 3.7% estimated last November. The World Bank downgraded its growth outlook for the global economy and revised its growth forecast to 2.8% from 3% estimated in January amid broad-based slowdown in emerging markets and weak output in the US.

The US Fed dovish on interest rate hike

Highly anticipated outcome of the US Federal Reserve’s (Fed’s) June meeting gave no major hint about the future trajectory of interest rates. The US Fed said that the economy is expanding moderately and hinted that it will wait for further improvement in the labour market and for higher confidence that inflation would rise, before making any decision on rate hike. The US Fed lowered its economic growth forecast for 2015 to 1.8-2.0% from March's 2.3-2.7% outlook, to account for the unexpected contraction in the first quarter of the year. Major economic institutions – International Monetary Fund (IMF) and OECD – too cut growth projections of the country. The IMF lowered the US growth forecast for 2015 to 2.5% from 3.1% while OECD downgraded it to 2% from the earlier projection of 3.1%. Meanwhile, the gross domestic product fell at a 0.2% annualized rate in the March quarter, revised from a previously reported 0.7% drop, and compared with 2.2% growth in the December quarter.

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 5.3% June 2015 5.5% May 2015 Bank of England 0.50%
UK GDP 2.9% Q1 2015 3% Q4 2014 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 7.3% Q4 2014    
Singapore’s GDP 2.6% Q1 2015 2.1% Q4 2014    

Key US economic indicators

  • The US posted a budget deficit of $82.4 billion in May, down 37% from the same period last year.
  • The current account deficit widened to $113.34 billion in Q1 2015 from $103.14 billion in Q4 2014.
  • Personal income climbed by 0.5% in May, matching the upwardly revised increase seen in April. Personal spending jumped by 0.9% in May after a revised 0.1% uptick in April.
  • Industrial production declined by a seasonally adjusted 0.2% in May against a revised drop of 0.5% in April.
  • Consumer Price Index (CPI) inflation growth was flat in the 12 months through May after a 0.2% yearly decline in April.
  • Retail sales increased 1.2% in May after an upwardly revised 0.2% gain in April.
  • In housing sector developments, new home sales rose to a seasonally adjusted annual rate of 546,000 units (the highest level since February 2008) compared with April's revised sales pace of 534,000 units while the existing home sales surged 5.1% to an annual rate of 5.35 million in May from an upwardly revised 5.09 million in April.


Eurozone confirms 1% growth in Q1; Greece defaults on IMF payment

The Eurozone economy expanded 1% annually in Q1 2015 compared to 0.9% growth in the previous quarter. The European Central Bank’s (ECB’s) economic bulletin noted that its asset purchase programmes were "proceeding well and positive effects are visible". In the negative, Greece became the first developed country to default on international obligation. The debt-ridden country missed the payment due to the IMF on June 30. Further the country voted 'No' to European Union rescue package in decisive referendum, thereby deepening the fear of exit from Eurozone.

Key Eurozone economic indicators:

  • Trade balance recorded a 24.9 billion euro surplus in April versus 14.9 billion euros in the same month last year.
  • Industrial production rose 0.1% in April versus March’s 0.4% decline.
  • Seasonally-adjusted unemployment rate was 11.1% in April, down from 11.2% in March.
  • Annual inflation growth was 0.3% in May following a flat reading in April.
  • Retail sales rose 0.7% in April, having sunk 0.8% the month before.
  • Annual inflation came in at 0.2% in June, down from 0.3% in May.
  • The seasonally-adjusted unemployment rate was 11.1% in May, stable compared with April.

The UK’s GDP revised up

The UK’s GDP growth rate for Q1 2015 was revised up from 2.4% to 2.9% and as compared with 3% growth in the preceding quarter. The economy grew 0.6% in the three months ended May after a growth of 0.5% in the three months ended April according to the National Institute of Economic and Social Research (NIESR). The Bank of England/GfK inflation report said that the price growth in the UK is expected to reach 2.2% in the coming year compared with 1.9% estimated in February.

Key UK economic indicators:

  • The public sector borrowing fell to 10.13 billion pounds in May, down from 12.35 billion pounds a year earlier.
  • The visible trade deficit narrowed by 2.1 billion pounds to a 13-month low of 8.6 billion pounds in April.
  • Industrial output increased 0.4% month-on-month in April, weaker than March's 0.6% growth.
  • Unemployment declined by 43,000 in the three months ended April to 1.81 million, the lowest since the June to August period of 2008. The ILO jobless rate for the February to April period was 5.5%, down from 5.7% logged for the three months to January.
  • Jobless claims fell by 6,500 in May from April to 791,800.
  • Consumer prices rose by 0.1% in the year to May, compared with a 0.1% fall in the year to April.
  • Retail sales rose by 0.2% in May, a slowdown from a rise of 0.9% in April.


China again reduces interest rates to boost economy

In an effort to counter slowdown in the economy, China’s central bank announced the fourth round of interest cuts in seven months. People's Bank of China (PBOC) lowered its benchmark one-year lending rates by 25 basis points (bps) to 4.85% and reduced the one-year benchmark deposit rate by 25 bps to 2%. The central bank also lowered the reserve requirement ratio (RRR) for banks that have met certain standards in lending to the farm sector and small and medium-sized enterprises by 50 bps. It lowered the reserve requirement for finance companies by 300 bps, which it said will help ease funding and costs pressure on state-owned enterprises.

Key Chinese economic indicators

  • The trade surplus widened to $59.49 billion in May compared to $34.13 billion the month before. Exports were down 2.5% year-over-year against a 6.4% fall in April, while imports slid 17.6% year-over-year after a 16.2% drop in April.
  • Industrial output rose 6.1% in May from a year earlier and slightly stronger than the 5.9% increase in April.
  • The official manufacturing PMI edged up to 50.2 from 50.1 in April.
  • CPI inflation rose 1.2% in May from a year earlier compared with a 1.5% rise in April.
  • Retail sales rose 10.1% from a year earlier, and slightly stronger than April's 10% rise.

Japan raises Q1 GDP growth forecast

Japan revised up its GDP growth for Q1 2015 to an annualised rate of 3.9% from the initial estimate of 2.4% on account of corporate capital investment’s higher contribution to growth. The country’s central bank - The Bank of Japan - maintained its massive stimulus programme and its upbeat assessment of the economy in its June meeting, signaling its conviction that growth will strengthen enough to accelerate inflation to its 2% target without more monetary easing.

Key Japanese economic indicators:

  • Japan posted a merchandise trade deficit of around 216 billion yen in May, following the downwardly revised 55.8 billion yen deficit in April. Exports added 2.4% year-on-year to 5.74 trillion yen, while imports tumbled an annual 8.7% to 5.96 trillion yen.
  • Industrial production fell 2.2% in May compared with a 1.2% increase in April.
  • CPI inflation rose 0.1% from a year earlier in May, after staying flat in April.
  • Retail sales rose 3% in May from the same period a year ago and 1.7% from the previous month.

Singapore economy to grow 2.7% in 2015

A survey by the Monetary Authority of Singapore (MAS) shows that Singapore’s economy is expected to grow 2.7% in 2015, down marginally from the earlier expectation of 2.8%. Among key economic indicators, consumer prices fell 0.4% year-on-year in May, moderating from a 0.5% decline in April. Non-oil domestic exports (NODX) slid 0.2% year on year in May following 2.2% gain in April.

Domestic Fixed Income Review

Domestic G-sec Yield

6 Month LIBOR

Interbank call money rates moved broadly in the range of 6.25-8.15% in June. Liquidity conditions were mostly comfortable in the month primarily due to inflows from some scheduled gilt redemptions and the government's month-end spending. Noting ample funds lying unutilised with banks, the RBI conducted regular reverse repo auctions to keep the call money rates from falling too low. Some pressure was, however, seen on the rates as banks borrowed funds to cover their mandatory reserve requirements and for payments towards indirect tax and gilts purchased in some bond auctions.

Indian government bond prices (gilts) witnessed heavy volatility in June, in line with the European and US bond markets amid Greece's deepening debt crisis. The yield on the new 10-year benchmark, the 7.72%, 2025 paper, ended at 7.86% on June 30, 2015, compared with 7.64% on May 29, 2015. Sentiments for gilts were affected earlier after the RBI's policy announcement diminished hopes of further interest rate cuts in the immediate future. In its policy review, although the RBI cut the repo rate by 25 bps to 7.25%, its forward guidance suggested that it would be a while before the policy is eased further. The apex bank said that the rate cut had been frontloaded and that the banking regulator will now wait for data to clarify uncertainty. A sharp sell-off toward the end of the month led by global market volatility due to fear of Greece exit from Eurozone also weighed on bond prices. Sporadic jump in global crude oil prices and quarter-end profit sales also put bonds under pressure.

Further decline in gilt prices was, however, capped after the outcome of the two-day US Federal Open Markets Committee (FOMC) policy meeting. At its policy meet, the FOMC kept interest rates unchanged, reiterating that it would be appropriate to raise the federal funds rate when it has seen further improvement in the labour market, and was reasonably confident that inflation would hit 2% over the medium term. Gilts were also buoyed by domestic retail inflation figures (released on June 12) for May. Prices rose further due to full subscription of most papers up for sale at some gilt auctions held by the RBI. Investors also cheered a report by the Indian Meteorological Department which indicated a pick-up in monsoons. Further, RBI Governor Raghuram Rajan's comments at an event on June 24 stating that the Indian economy can survive any volatility arising out of the Greek debt crisis also propped up prices. The government’s reluctance to borrow at the higher yields demanded in a weekly auction gave bond prices a boost.

Major regulatory developments in the month

The Ministry of Finance agreed with the RBI’s proposal to set the FII limit in government securities in rupee terms, instead of US dollar terms as at present. The RBI released calendar of market borrowings by state governments on its website for the September quarter. The RBI came up with draft rules for companies to sell rupee bonds overseas, setting a limit on the price of bonds at 500 bps above government bonds of similar maturities. The central bank introduced a new 30-year government bond; it will be reckoned as an eligible instrument in government security by banks for statutory liquidity ratio (SLR) purpose. The RBI decided to introduce cash-settled interest rate futures (IRFs) on 5-7-year and 13-15-year G-secs. It also plans to modify the residual maturity of cash-settled 10-year IRF to between 8 and 11 years. Further, it allowed banks to invest in long term-bonds of other banks and set a condition that not more than 20% of the primary issue size of a bond issue is allotted to investor banks. SEBI allowed stock exchanges to introduce cash-settled IRFs on 6- and 13-year G-secs, in addition to 10-year bonds already traded in the market. It is also planning to include two more bonds with 5-and 15-year maturities to deepen the IRF market. Insurance Regulatory and Development Authority of India (IRDAI) proposed that not less than 25% of unit-linked insurance funds shall be invested in central government securities. The Board of Financial Benchmarks India Pvt. Ltd (FBIL) decided to take over the administration of the overnight benchmark rate and replace Mumbai Inter-bank Offer Rate (Mibor) with a new benchmark called the FBIL Overnight MIBOR, from July 22. The NSE decided to introduce a new web—based ‘negotiated trade platform’ for reporting all the deals in the debt segment, from July 1. The BSE decided to launch trading in government bonds in demat form in a bid to improve participation of individual investors.

Among banking related developments, Finance Secretary said the government might infuse additional $1.8 billion in public sector banks this fiscal over and above the $1.2 billion earmarked in the Budget. The RBI allowed banks to borrow from global multilateral financial institutions for general banking business without seeking the central bank's approval in a bid to make the funding process easier. It also allowed banks to acquire 51% or more stakes in companies defaulting after restructuring of their loans. Further, it said that the first set of new banking licences will be issued by August. The central bank asked banks to encourage borrowers to hedge agri-products on commodity bourses. It also restricted the remuneration of non-executive directors of private banks at Rs 10 lakh per annum, while the compensation of non-executive part-time chairman will require prior approval from the regulator. The RBI made a case for developing better strategies to deal with the problem of bad loans as hiding them would aggravate the situation for the banks as well as borrowers. RBI Deputy Governor R Gandhi advised regional rural banks (RRBs) and co-operative banks to pull up their socks as they are set to face more competition in the future with a fresh round of banking licences set to be issued to small payment banks. The RBI said the pricing of credit by non-banking finance companies (NBFCs) in the micro-finance sector, for the quarter beginning July 1, will be 9.89%.


Fixed Income Indicators

Rates & Liquidity

  30-Jun-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) 8061 5100 19651
LAF o/s Rev Repo (Rscr) 19133 3771 7477

Overnight                                         Rate(%)

  30-Jun-15 1 Week Ago 1 Month Ago
Mibor 7.28 7.28 7.59
Call 7.20 6.65 7.50
CBLO 7.20 7.22 7.54
OIS 1Y 7.54 7.54 7.48
OIS 5Y 7.25 7.20 7.10

CDs                                                             Yield(%)

  30-Jun-15 1 Week Ago 1 Month Ago
1-Month 7.69 7.72 7.85
3-Month 7.68 7.73 7.92
6-Month 7.86 7.86 8.13
1-Year 8.06 8.11 8.25

CPs                                                   Yield(%)

  30-Jun-15 1 Week Ago 1 Month Ago
1-Month 7.70 7.96 8.15
3-Month 7.95 7.99 8.15
6-Month 8.35 8.38 8.55
1-Year 8.56 8.61 8.72

Short Term Bonds                                        Yield(%)

  30-Jun-15 1 Week Ago 1 Month Ago
1 Y G-Sec 7.63 7.56 7.73
1 Y AAA 8.35 8.30 8.39
1 Y AA 8.87 8.82 8.91
2 Y G-Sec 7.80 7.77 7.76
2 Y AAA 8.38 8.28 8.29
2 Y AA 8.85 8.75 8.76

Long Term Bonds                          Yield(%)

  30-Jun-15 1 Week Ago 1 Month Ago
5 Y G-Sec 8.06 7.94 7.84
5 Y AAA 8.64 8.51 8.40
5 Y AA 9.29 9.16 9.05
10 Y G-Sec 7.86 7.75 7.82
10 Y AAA 8.58 8.48 8.36
10 Y AA 9.40 9.30 9.18

Top 5 Graded G Secs                                   Yield(%)

  30-Jun-15 1 Week Ago 1 Month Ago
08.40% CGL 2024 8.04 8.06 7.82
08.60% CGL 2028 7.86 7.89 7.64
08.27% CGL 2020 8.06 8.08 7.84
08.15% GS 2026 8.14 8.16 7.88
08.27% CGL 2020 8.07 8.11 7.81


  30-Jun-15 1 Week Ago 1 Month Ago
USD/INR 63.65 63.59 63.82
EURO/INR 71.20 72.32 69.91
GBP/INR 100.12 100.41 97.80
100 JPY/INR 52.07 51.46 51.48
USD/EURO 0.90 0.89 0.92


10 Year G-sec movement


Corporate Bond Yield


Corporate AAA, AA Bond Spreads


Economic Events Calendar

July 13, 2015
  • US Monthly Budget Statement
  • India’s CPI for Combined, Rural, and Urban, June
  July 29, 2015
  • US FOMC Rate Decision
  • US Pending Home Sales, June
  • UK Net Consumer Credit, June
July 14, 2015
  • US Retail Sales (Advance), June
  • US Import Price Index, June
  • US Business Inventories, May
  • UK Consumer Price Index, June
  • UK Retail Price Index, June
  • UK Producer Price Index, June
  • Eurozone Industrial Production, May
  • Eurozone ZEW Survey Expectations, July
  • India’s Wholesale Price Index Inflation, June
  July 30, 2015
  • US GDP, Q2 2015 (Advance)
  • US Personal Consumption, Q2 2015 (Advance)
July 15, 2015
  • US Empire Manufacturing, July
  • US Producer Price Index – Final Demand, June
  • US Industrial Production/Capacity Utilisation, June
  • UK ILO Unemployment Rate, May
  • UK Unemployment Report, June
  August 1, 2015
  • China’s Manufacturing PMI, July
July 16, 2015
  • US NAHB Housing Market Index, July
  • Eurozone Consumer Price Index, June
  • Eurozone Trade Balance, May
  August 3, 2015
  • US Markit Manufacturing PMI, July
  • US Personal Income & Spending, June
  • US Constructions Spending, June
  • US ISM Manufacturing, July
  • Eurozone Markit Manufacturing PMI, July
  • UK Markit PMI Manufacturing, July
  • China’s Non-manufacturing PMI, July
  • China’s HSBC Manufacturing PMI, July
July 17, 2015
  • US University of Michigan Confidence, July
  • US Building Permits, June
  • US Housing Starts, June
  • US Consumer Price Index, June
  • Eurozone Construction Output, May
  August 4, 2015
  • US Factory Orders, June
  • Eurozone Producer Price Index, June
  • UK Markit/CIPS Construction PMI, July
  • India’s RBI Third Bi-Monthly Monetary Policy Review
July 20, 2015
  • India’s CPI for rural and farm labourers, June
  August 5, 2015
  • US Markit Composite & Services PMI, July
  • US ADP Employment Change, July
  • US ISM Non-Mfg. Composite, July
  • US Trade Balance, June
  • Eurozone Markit Services & Composite PMI, July
  • Eurozone Retail Sales, June
  • UK Markit/CIPS Services & Composite PMI, July
  • UK Halifax House Prices, July
  • China’s HSBC Composite & Services PMI, July
July 22, 2015
  • US FHFA House Price Index, May
  • US Existing Home Sales, May
  August 6, 2015
  • US NIESR GDP Estimate, July
  • Eurozone Markit Retail PMI, July
  • Bank of England Monetary Policy Review
  • UK Industrial Production, June
  • UK Manufacturing Production, June
July 23, 2015
  • US Chicago Fed Nat Activity Index, June
  • US Markit Manufacturing (Mfg.) PMI, July
  • US Leading Index, June
  • Eurozone Markit Manufacturing PMI< July
  • Eurozone Markit Services & Composite PMI, July
  • UK Retail Sales, June
  • China’s HSBC Manufacturing PMI, July
  August 7, 2015
  • US Change in Private Payrolls, July
  • US Change in Mfg. Payrolls, July
  • US Unemployment Rate, July
July 24, 2015
  • US New Home Sales, June
  August 8, 2015
  • US Consumer Credit, June
July 27, 2015
  • US Markit Composite & Services PMI, July
  • US Durable Goods Orders, June
  • US Dallas Fed Mfg. Activity, July
  August 10, 2015
  • US Labor Market Conditions Index Change, July
  • Eurozone Sentix Investor Confidence, Augustay
July 28, 2015
  • US Consumer Confidence Index, July
  • UK GDP, Q2 2015 (Advance)
  • UK Index of Services, May
  • UK Nationwide House Price Index, July
  • China’s Leading Index, June

US Fixed Income Markets - Overview

The US Treasuries sharply weakened in June, with the yield of the benchmark 10-year paper rising to 2.34% on June 30 compared to 2.10% on May 29. The US bond market started the month on a negative note tracking a persistent rise in German bond yields and resulting selloff in global bond markets due to easing deflation worries in the Eurozone, especially after the European Central Bank (ECB) raised its inflation forecast for this year from zero to 0.3%. A slew of US economic data including jobs and inflation figures dampened demand for treasuries and pulled prices down. Comments from some US Fed officials suggesting that a US interest rate hike is likely by September further dented the safe-haven appeal of treasuries. However, uncertainty over Greece’s ability to repay its international creditors provided support to prices. The US Fed’s dovish tone in its latest policy announcement further aided gains. Discouraging US industrial production and GDP data for the March quarter also prompted bond purchases and pushed prices up further.

US 10 Year Govt. Bond Yield


Learning Centre– Bond swaps

In March, the government announced that it had switched or bought back Rs 30,228 cr worth of dated securities maturing in 2015-16 with the Reserve Bank of India (RBI). With the proceeds, the Centre purchased longer tenor papers maturing in 2026-27, thus swapping securities in the near term with those maturing over a longer time frame. This article introduces bond swaps and explains why they are performed.

A bond swap involves replacing dated securities in the portfolio with other bonds for the purpose of enhancing the portfolio’s overall return. Swaps may be performed to increase the yield of the portfolio, to better position the portfolio to take advantage of future interest rate shifts, or for reasons such as reducing portfolio risk, reducing tax outflows. Some of the most well know types of swaps are listed below:

Yield pickup swap: This type of swap involves replacing low coupon bonds in the portfolio with higher coupon bonds to increase the portfolio’s current yield and yield to maturity.

Substitution swap: In a substitution swap, the investor switches a lower yielding paper with a higher yielding paper in the hopes of capturing capital gains as the yield differential reduces over time. This type of swap involves considerable interest rate risk.

Tax swap: Such swaps are performed to reduce tax outflows, and don’t involve making interest rate projections. In a tax swap, an investor may chose to sell a bond that is currently trading at a price lower than its purchase price to establish a capital loss in order to offset the taxes applicable on other bonds that have experienced capital gains.

Credit quality: Swapping bonds to improve quality is when an investor sells bond with a lower credit rating for a similar one with a higher rating thereby reducing overall portfolio risk. Similarly, investor can also earn higher returns by swapping higher-quality bond with low-quality bond for assuming higher credit risk.

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