March 2016 | srei
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March 2016

Highlights of RBI’s First Bi-Monthly Monetary Policy Review 2016-17

RBI decided to:

  • reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 6.75% to 6.5%;
  • reduce the minimum daily maintenance of the cash reserve ratio (CRR) from 95% of the requirement to 90% with effect from the fortnight beginning April 16, 2016, while keeping the CRR unchanged at 4.0% of net demand and time liabilities (NDTL);
  • continue to provide liquidity as required but progressively lower the average ex ante liquidity deficit in the system from 1% of NDTL to a position closer to neutrality; and
  • narrow the policy rate corridor from +/-100 basis points (bps) to +/- 50 bps by reducing the MSF rate by 75 basis points and increasing the reverse repo rate by 25 basis points, with a view to ensuring finer alignment of the weighted average call rate (WACR) with the repo rate;
  • Consequently, the reverse repo rate under the LAF stands adjusted to 6.0%, and the marginal standing facility (MSF) rate to 7.0%. The Bank Rate which is aligned to the MSF rate also stands adjusted to 7.0%.


Indian Economy Review

Mixed growth forecasts for the Indian economy

International agencies seem to have differing views on India’s growth prospects. The International Monetary Fund (IMF) has projected 7.3% growth for the country in fiscal 2016 and 7.5% in fiscal 2017. According to IMF Chief Christine Lagarde, “India’s star shines bright” amid global economic challenges. She believes India can deliver nearly two-third of the worldwide growth over the next four years despite a slowing momentum. On the other hand, the Asian Development Bank (ADB) has cut India’s economic growth forecast for 2016-17 to 7.4% from 7.8% projected last September, but it expects growth to pick up to 7.8% in 2017-18. Meanwhile, Finance Minister Arun Jaitley has pegged India's GDP growth rate at 7.6% for the fiscal 2015-16.

Domestic GDP Growth


Inflation eases in February

India’s retail inflation eased to 5.18% annually in February from 5.69% in January. Wholesale inflation fell for the 16th straight month in February, dropping to -0.91% from -0.90% in January.

Government misses its divestment target

The Central government missed the divestment target for fiscal 2015-16; it garnered Rs 19,514 crore against the budgetary target of Rs 69,500 crore. But, it did raise Rs 4,400 crore by selling part of its holdings in Hindustan Aeronautics Ltd and Bharat Dynamics back to them. The Ministry of Finance (MoF) is considering up to 10% stake sale in at least one public sector general insurance company in fiscal 2017. It informed that the divestment department will ensure that the unlisted public sector units with excess cash piles either pay special dividend or buy back government shares and gradually move towards listing. The government plans to examine around 80 state-owned companies for either strategic stake sale or sale of some assets or units under its renewed disinvestment programme.

The Cabinet approved the following key schemes

  • A Rs 8,000-crore scheme to provide cooking gas (LPG) connections free of cost to women members of poor households.
  • A 6% hike in dearness allowance to government employees and pensioners, and rural housing scheme to build 29.4 million houses in rural areas by 2022.
  • A new price formula for undeveloped gas discoveries of oil exploration firms in difficult areas, which should lead to a near-doubling of rates
  • Amendment to the Mines and Minerals (Development and Regulation) Act to allow transfer of captive mining leases issued prior to January 12, 2015, in case of mergers and acquisitions.

Important bills passed in the Parliament

  • The Real Estate (Regulation and Development) Bill
  • The Aadhaar (targeted delivery of financial and other subsidies, benefits and services) Bill
  • Bill under which the Bureau of Indian Standards (BIS) can order recall of products not conforming to standards, in addition to cancellation of licence of the manufacturer
  • Bill to convert 111 rivers across the country into national waterways

Other major developments in the month

  • Finance Minister Arun Jaitley rolled back a Budget proposal to tax withdrawals from the Employees' Provident Fund (EPF). He withdrew a plan to limit monetary contributions made by employers in a recognised provident or a superannuating fund to Rs 1.5 lakh per annum to avail tax sops.
  • The government cut interest rates on all small savings schemes, including Public Provident Fund by 60 bps and Kisan Vikas Patra by 90 bps.
  • It permitted 100% foreign direct investment (FDI) in the market place format of e-commerce retailing with a view to attract more foreign investments.
  • It has asked all state-run banks to invoke personal guarantees submitted in case a borrower company defaults. It also plans to open, from June 1, its one-time offer to settle retrospective tax disputes.
  • It came out with draft rules pertaining to revival and rehabilitation of sick firms under the Company Law.
  • It also raised the financial threshold limit for companies seeking approval from Competition Commission of India (CCI) for proposed mergers and acquisitions.
  • Revenue Secretary Hasmukh Adhia said General Anti-Avoidance Rules (GAAR) will be effective from April next year, and the government is ready to provide more clarity on the same. The Ministry of Commerce and Industry notified 49% FDI under the automatic route in the insurance and pension sectors.

Foreign tie-ups

  • The World Bank and the Government of India signed a $1.5 billion loan agreement for the Swachh Bharat Mission Support Operation Project.
  • ADB and the US Agency for International Development (USAID) signed a pact for providing Rs 5,681 crore to develop solar parks across India.
  • Japan committed loans worth about Rs 14,251 crore for five infrastructure development projects in India.
  • India signed an agreement with Bangladesh to extend a $2 billion credit line to the latter.

Among other initiatives taken up by the government

The government plans to infuse additional Rs 5,050 crore in some public sector banks. It allowed virtual network operators to set up shop in India. It notified new norms for plastic waste management across the country. Further, it put out a draft law to tackle unregulated deposit-taking schemes with stiff penal and monetary punishment for offenders and sought comments from the public on the draft bill. The government has asked taxpayers with an annual income of over Rs 50 lakh to declare immovable assets such as land and building and movable assets such as cash in hand, jewellery, vehicles, etc. It plans to make Uniform Code of Pharmaceutical Marketing Practice (UCPMP) mandatory in order to control unethical practices in the industry. Defence Minister Manohar Parrikar announced the new defence procurement policy which, he said, embodies transparency, speed and the 'Make in India' concept. The petroleum ministry notified a gas price ceiling of $6.61 per million British thermal unit (mBtu) on a gross calorific value following new pricing norms for difficult fields. It also lowered the ceiling price of natural gas produced from blocks auctioned after 1999 by about 20% to $3.06 per mBtu.

Regulatory developments in the month

The RBI will share FDI related information with India’s intelligence agencies - Intelligence Bureau and The Research and Analysis Wing - to check black money from entering the country. The Central Board of Direct Taxes clarified that companies which are part of a consortium in large infrastructure projects will be treated as separate taxable units. It allowed taxpayers to make the choice if an equity holding is a business income or capital gain. It also notified special tax rules for offshore funds managed in India. Funds can now appoint fund managers in India without the risk of being treated as a resident for tax purposes.

Major economic indicators released during the month:

India’s industrial production fell for the third consecutive month; it contracted 1.5% in January after contracting a revised 1.2% in December. Core sector growth almost doubled to 5.7% in February from 2.9% a month earlier. The country’s fiscal deficit was Rs 5.73 lakh crore during April-February, or 107.1% of the full-year target. Deficit was 117.5% of the full-year target during the same period a year ago. Current account deficit in the October-December quarter narrowed to $7.1 billion, or 1.3% of gross domestic product, from $8.7 billion, or 1.7% of GDP a quarter earlier. India’s exports declined 5.66% in February to $20.73 billion from $21.98 billion in the same month last year, while imports fell 5.03% to $27.28 billion from $28.72 billion in February 2015. Trade deficit narrowed to $6.54 billion in February from $7.64 billion in January. India’s total external debt rose 1% or $4.9 billion to $480.2 billion at December-end, from March-end last year.

India’s Nikkei manufacturing purchasing managers’ index (PMI) held steady in February from the previous month at 51.1, while services PMI sank to 51.4 in February from 54.3 in January. FDI inflows into the services sector jumped 85.5% to $4.25 billion in April-December.

Indicators Current Previous
Monthly WPI Inflation -0.91% (February 2016) -0.90% (January 2016)
Industrial Growth -1.5% (January 2016) -1.2% (December 2015)
Exports $238.42bn (April-February 2016) $286.31bn (April-February 2015)
Imports $351.81 bn (April-February 2016) $412.60 bn (April-February 2015)
Trade Balance -$113.39bn (April-February 2016) -$126.29 bn (April-February 2015)
Gross Tax Collections Rs 1,152,545cr (April-February 2016) Rs 954,953cr (April-February 2015)

IIP Growth

IIP Growth

  • India’s industrial production fell for the third consecutive month; it contracted 1.5% in January after contracting a revised 1.2% in December.

IIP-Core Sector Growth

Core IIP Growth

  • India’s core sector growth almost doubled to 5.7% in February from 2.9% a month earlier.

Fiscal Deficit

Fiscal Deficit

  • The country’s fiscal deficit was Rs 5.73 lakh crore during April-February, or 107.1% of the full-year target; deficit was 117.5% of the full-year target during the same period a year ago.

Global Economy Review

US Fed keeps interest rate unchanged; forecasts fewer hikes in 2016

The US Federal Reserve (Fed) left the key interest rate unchanged at 0.25-0.50% in its latest meeting, citing global risk. Fed officials forecasted two rate hikes of 25 basis points (bps) each in 2016, down from four rate hikes as per December forecasts. Fed Chief Janet Yellen reiterated the need for a cautious approach amid unfavourable market conditions, weaker-than-expected global growth and an uncertain inflation outlook. The country’s GDP rose 1.4% at a seasonally adjusted annual rate in Q4 2015 compared with 1% growth estimated earlier.

World GDP Growth

World GDP Growth

Major Indicators Current Previous Major Global Central Bank Latest Key Interest Rates
US GDP 1.4% Q4 2015 2% Q3 2015 US Fed Funds Rate 0.25-0.50%
US unemployment 5.0% March 2016 4.9% February 2016 Bank of England 0.50%
UK GDP 2.1% Q4 2015 2.2% Q3 2015 European Central Bank 0.05%
Euro Zone GDP 1.6% Q4 2015 1.6% Q3 2015 Japan Benchmark Rate 0-0.10%
Japan GDP -1.1% Q4 2015 1.4% Q3 2015    
China GDP 6.8% Q4 2015 6.9% Q3 2015    
Singapore’s GDP 2% Q4 2015 1.8% Q3 2015    

Key economic indicators

  • Trade deficit widened to $45.7 billion in January from $44.7 billion in December.
  • Industrial production increased 0.2% in February following a 0.5% gain in January.
  • Personal income rose 0.2% in February after rising 0.5% in January. Consumer spending edged up 0.1% in February after a downwardly revised 0.1% gain in January.
  • Retail sales dipped 0.1% in February against a revised 0.4% decline in January.
  • Consumer prices declined 0.2% in February after remaining unchanged in January.
  • Non-farm payrolls increased by 215,000 in March compared to a revised 245,000 in February; the unemployment rate rose to 5.0% in March from 4.9% in February.
  • New home sales rose 2% to a seasonally adjusted annual rate of 512,000 units in February following revised 502,000 units in January, while the pending home sales index rose 3.5% to 109.1 in February, the highest level in seven months compared with a revised 3% decline in January.


European Central Bank announces fresh stimulus measures to boost economy

The European Central Bank (ECB) announced bold stimulus measures to boost Eurozone’s economic recovery and combat deflation. The ECB slashed its main benchmark rate to 0% from 0.05%, increased its monthly bond purchases to 80 billion euros from 60 billion euros and reduced the interest rate on deposits held by banks at the ECB to -0.4% from -0.3%. The measures also included long-term cheap loans with tenors up to four years to support banks. The economy expanded 1.6% annually in Q4 2015, trailing similar growth in the previous quarter.

Key Eurozone economic indicators:

  • Trade surplus shrank to 21.2 billion euros in January from 22.5 billion euros in December.
  • Industrial production rose 2.1% in January from a 0.5% decline in December.
  • Consumer prices remained deflated at a negative 0.1% on an annualised basis in March, but an improvement from -0.2% in February.
  • Jobless rate was 10.3% in January against 10.4% in December.
  • Retail sales rose 0.4% month-on-month in January compared with December’s 0.6% increase.

Bank of England maintains interest rate at record low

The UK’s central bank – Bank of England (BoE) – unanimously kept interest rates unchanged at a record low of 0.5% and maintained the asset purchase programme at 375 billion pounds, in light of the global economic slowdown and concerns about weak wage growth and low inflation. In a separate measure, the BoE issued a warning on Britain’s exit from the European Union (EU), amid uncertainty surrounding the referendum on EU membership. Citing the biggest short-term domestic threat to financial stability, the central bank said that Britain’s exit from EU could hit foreign investment, borrowing costs and the pound. The UK economy expanded 2.1% annually in Q4 2015 compared with 2.2% growth in the previous quarter.

Key UK economic indicators:

  • The visible trade deficit decreased to 10.3 billion pounds in January from 10.5 billion pounds in December.
  • Industrial production rose 0.3% in January, following a revised 0.8% fall in December.
  • Public sector net borrowing decreased to 7.1 billion pounds in February from 7.5 billion pounds a year earlier.
  • Retail sales fell 0.4% month-on-month in February against a 2.3% rise in January.
  • Consumer prices rose 0.3% year-on-year in February 2016, same as in January 2016.
  • The jobless rate was 5.1% in the three months to January, unchanged from the fourth quarter of 2015. Unemployment fell to 1.68 million between November and January, down 28,000 from the previous quarter.


China to see moderate growth in 2016

The Asian Development Bank (ADB) forecasted China’s economic growth to moderate at 6.5% in 2016 and 6.3% in 2017, from 6.9% in 2015, citing factors such as weak external demand, excess capacity in some sectors, shrinking labour force and rising wages. Rating agencies Moody’s Investors Service and Standard & Poor’s Ratings Services lowered their outlook on China’s credit rating to negative. Meanwhile, the People’s Bank of China Governor Zhou Xiaochuan stated that the existing monetary policy is prudent and excessive stimulus is not needed to meet the targeted 6.5% growth over the next five years.

Key Chinese economic indicators

  • Exports plunged 25.4% from a year earlier, following a 11.2% drop in January, while imports declined 13.8% in February from a year earlier, and compared with an 18.8% drop in January, resulting in a trade surplus of $32.6 billion in February from an all-time high of $63.3 billion in January.
  • Industrial production rose 5.4% from a year earlier in January and February.
  • Retail sales rose 10.2% from a year earlier in January and February.
  • The consumer price index rose 2.3% in February from a year earlier, compared with a 1.8% gain in January.
  • The official manufacturing purchase manufacturing index (PMI) came in at 49.0 in February, lower than January's reading of 49.4, while non-manufacturing PMI came in at 52.7 in February, down from 53.5 in January.
  • Average new home prices rose 3.6% year-on-year in February, compared with a 2.5% rise in January.

Japan’s GDP shrinks less than expected in Q4 2015

The Japanese economy shrank by an annualised 1.1% in October-December, less than a 1.4% contraction estimated earlier, and compared with 1.4% growth in Q3 2015. Meanwhile, the Bank of Japan (BoJ) maintained its commitment to raise the monetary base by 80 trillion yen annually and left key interest rates unchanged. The central bank said that if needed additional easing steps will be taken to hit 2% inflation and added that it will review the ratio of reserves for which negative interest rates are applied every three months.

Key Japanese economic indicators:

  • Trade balance showed surplus of 242.8 billion yen in February, marking its biggest trade surplus since September 2011. The surplus compares with a deficit of 426 billion yen in February 2015 and a deficit of 648.7 billion yen a month ago.
  • Industrial production fell 6.2% month-on-month in February, a turnaround from January’s increase of 3.7%.
  • The consumer price index remained flat in February from the previous year, same as the previous month.
  • Retail sales were up 0.5% on year in February, following a 0.2% decline in January.
  • Unemployment rate increased 0.1% in February from a month earlier to a seasonally-adjusted 3.3%.

Singapore’s growth outlook turns gloomy

The Monetary Authority of Singapore’s latest quarterly survey showed that analysts cut their growth forecast for 2016 to 1.9% from 2.2%. The ADB said that the country’s economic growth will remain stable at 2% in 2016 but should increase to 2.2% in 2017, and the main growth driver will be consumption and government spending as the external sector remains weak.

Key Singapore economic indicators:

  • Industrial production fell 4.7% year-over-year in February, following 0.1% rise in January.
  • Non-oil domestic exports (NODX) rose 2.1% in February from a year ago, following revised 10.1% fall in January.
  • Headline inflation eased in February to -0.8% from January's -0.6%.

Domestic Fixed Income Review

Domestic G-sec Yield

6 Month LIBOR

Interbank call money rates remained below the repo rate of 6.75% for most parts of the month. Call rates were on the lower side, mainly because of regular fund infusion by the RBI via repo auctions and open market operations, and inflows from the government’s month-end spending. However, some spike in call rates was seen due to strong demand from banks to cover reserve requirements and outflows pertaining to indirect tax and corporate advance tax payments. Redemption of term repos held in some sessions and increased currency in circulation toward end of the financial year also weighed on the inter-bank rates to a certain extent.

Government security prices (gilts) rose sharply in the month. Yield on the 10-year benchmark – the 7.59%, 2026 paper – ended at 7.46% on March 31, 2016, compared with 7.62% on February 29, 2016. Gilts were primarily boosted by expectation of a rate cut by the RBI in its April policy announcement, amid softer inflation figures and backed by the government's move to cut interest rates in small savings schemes. Bond prices also received a shot-in-the-arm as a result of the central bank's open market bond purchase auctions. Prices received further thrust as the gilt market absorbed details of the Centre's borrowing calendar for the first half of 2016-17. Favourable cut-offs at some state loan auctions also aided sentiment. Reports that the central bank has allowed bonds issued under the government's Ujwal DISCOM Assurance Yojana programme to be placed in the "held-to-maturity" (HTM) category, intermittent strength in the rupee's exchange rate, and a sharp fall in US Treasury yields, following outcome of the US Federal Open Market Committee's policy meet, drove up prices further. However further advance in the gilts was halted as state-owned banks booked profits towards end of the financial year. Prices were also affected due to a rise in global crude oil prices.

Among major developments

The government decided to borrow Rs 3.55 lakh crore or 59.2% of the total borrowing requirement in the first half of the next fiscal; net market borrowings would be Rs 2.48 lakh crore, which is 58% of the net market borrowing of Rs 4.25 lakh cr budgeted for 2016-17. Further, it issued gold bonds on March 29 as part of its market borrowing programme. It also decided to buy back the WPI-linked inflation indexed bonds worth Rs 3,299 crore on March 28. The Finance Ministry gave permission to Uttar Pradesh, Rajasthan, Jharkhand and Chhattisgarh to issue bonds as part of the Ujwal DISCOM Assurance Yojana (UDAY).

RBI raised limits on foreign ownership of bonds issued by the Indian government and states by an aggregate of Rs 27,500 crore, which could come into effect in April and July. It also said the limit for Ways and Means Advances for the first half of the next fiscal will be Rs 50,000 crore. Further, it allowed banks to count the debt they hold from state electricity utilities as part of their HTM bonds. It also issued guidelines permitting standalone Primary Dealers (PDs) to participate in exchange-traded currency futures on approved stock exchanges.

RBI made amendments to treatment of certain balance sheet items of banks, in effect, boosting their regulatory capital and aligning it with the internationally-adopted Basel III capital standards. It said fixed-rate loans of up to three years offered by lenders will have to be set, based on their marginal cost of funding, although loans above that tenor would be exempt. The central bank also revised some rules on measuring liquidity for Basel-III norms. RBI asked banks to pay interest on their customers’ savings accounts on a quarterly basis or a shorter duration. Further, it told the Supreme Court that corporate loan defaults may not always be the promoters' fault or mala fide and may sometimes be due to external factors beyond their control such as cyclical ups and downs of an economy. RBI advised banks to ensure strict compliance to provisions of crop insurance schemes. SEBI allowed foreign portfolio investors to invest in newly launched products -- REITs, InvITs and AIFs -- and also permitted them to acquire corporate bonds under default. The Central Board of Direct Taxes (CBDT) said capital gains tax will be computed from the date of acquisition of financial instruments like bonds and debentures and not from the date of their conversion into shares.

RBI released draft norms for setting up of non-banking finance companies (NBFCs) that would act as account aggregators and provide customers with a single platform view of all their financial holdings across banking, insurance, mutual funds and shares. It also said that fund and non-fund based exposures to central government sovereign debt by NBFCs will carry no risk weight. Further, it allowed infrastructure firms and NBFCs that lend to the sector to raise external commercial borrowings (ECB) with a minimum maturity of five years.


Fixed Income Indicators

Rates & Liquidity

  31-Mar-16 1 Week Ago 1 Month Ago
Repo 6.75 6.75 6.75
Reverse Repo 5.75 5.75 5.75
CRR 4.00 4.00 4.00
LAF o/s Repo (Rscr) 17854 22485 18769
LAF o/s Rev Repo (Rscr) 41950 17743 7054

Overnight                                         Rate(%)

  31-Feb-16 1 Week Ago 1 Month Ago
Mibor 9.00 6.93 6.96
Call 12.00 5.90 7.50
CBLO 7.38 7.03 6.84
OIS 1Y 6.70 6.86 6.84
OIS 5Y 6.61 6.67 6.70

CDs                                                             Yield(%)

  31-Feb-16 1 Week Ago 1 Month Ago
1-Month 7.10 8.10 7.08
3-Month 7.06 8.15 8.24
6-Month 7.40 7.90 8.20
1-Year 7.40 7.95 8.10

CPs                                                   Yield(%)

  31-Feb-16 1 Week Ago 1 Month Ago
1-Month 7.80 9.19 8.82
3-Month 7.85 8.83 9.25
6-Month 8.43 8.92 9.17
1-Year 8.43 9.00 9.15

Short Term Bonds                                        Yield(%)

  31-Feb-16 1 Week Ago 1 Month Ago
1 Y G-Sec 7.02 7.22 7.26
1 Y AAA 7.80 7.98 8.33
1 Y AA 8.32 8.50 8.85
2 Y G-Sec 7.27 7.30 7.41
2 Y AAA 8.00 8.00 8.35
2 Y AA 8.47 8.47 8.82

Long Term Bonds                          Yield(%)

  31-Feb-16 1 Week Ago 1 Month Ago
5 Y G-Sec 7.52 7.65 7.73
5 Y AAA 8.17 8.20 8.58
5 Y AA 8.82 8.85 9.23
10 Y G-Sec 7.46 7.51 7.62
10 Y AAA 8.26 8.28 8.60
10 Y AA 9.08 9.10 9.42

Top 5 Graded G Secs                                   Yield(%)

  31-Feb-16 1 Week Ago 1 Month Ago
07.59% GS 2029 7.69 7.73 7.99
07.59% GS 2026 7.46 7.50 7.62
07.88% GS 2030 7.83 7.86 8.02
07.72% GS 2025 7.69 7.73 7.79
08.27% CGL 2020 7.44 7.49 7.64


  31-Feb-16 1 Week Ago 1 Month Ago
USD/INR 66.25 66.71 68.57
EURO/INR 75.10 74.90 75.77
GBP/INR 95.09 95.75 96.89
100 JPY/INR 59.06 59.37 61.12
USD/EURO 0.88 0.90 0.92


10 Year G-sec movement


Corporate Bond Yield


Corporate AAA, AA Bond Spreads


Economic Events Calendar

April 11, 2016
  • China’s Consumer Price Index, March
  •  China’s Producer Price Index, March
  • Japan’s Machine Tool Orders, March
  April 26, 2016
  • US Durable Goods Orders, March
  • US S&P Case-Shiller HPI, February
  • US Consumer Confidence, April
April 12, 2016
  • US Import & Export Price Index, March
  • UK Consumer Price Index, March
  • UK Producer Price Index, March
  • UK Retail Price Index, March
  • India’s Consumer Price Index Inflation, March
  • India’s Industrial Production, February
  April 27, 2016
  • US Pending Home Sales Index, March
  • US International Trade, February
  • UK GDP (Preliminary), Q1 2016
  • Bank of Japan Monetary Policy Review
  • Japan’s All Industry Index, February
April 13, 2016
  • US Treasury Budget, March
  • US Producer Price Index – Final Demand, March
  • US Retail Sales, March
  • US Business Inventories, March
  • Japan’s Producer Price Index, March
  • Eurozone Industrial Production, February
  April 28, 2016
  • US FOMC Meeting Announcement
  • US GDP, Q1 2016
  • US Services PMI, April
  • Eurozone Economic Sentiment, April
  • Japan’s Consumer Price Index, March
  • Japan’s Unemployment Rate, March
April 14, 2016
  • US Beige Book
  • US Consumer Price Index, March
  • Eurozone Consumer Price Index, March
  • Bank of England Monetary Policy Announcement & Minutes
  • India’s Wholesale Price Index, March
  April 29, 2016
  • US Personal Income and Outlays, March
  •  US Employment Cost Index, Q1 2016
  • US Chicago PMI, April
  • US University of Michigan Consumer Sentiment, April
  • Eurozone Consumer Price Index, April
  • Eurozone Unemployment Rate, March
April 15, 2016
  • US Empire State Mfg Survey, April
  • US Industrial Production/Capacity Utilisation, March
  • US University of Michigan Consumer Sentiment, April
  • Eurozone Trade Balance, February
  • China’s GDP, Q1 2016
  • China’s Industrial Production, March
  • China’s Retail Sales, March
  May 2, 2016
  • US Manufacturing PMI, April
  • US ISM Mfg Index, April
  • US Construction Spending, March
  • Eurozone Manufacturing PMI, April
  • China’s Manufacturing PMI, April\
  • Japan’s Manufacturing PMI, April
  • India’s Nikkei Manufacturing PMI, April
April 18, 2016
  • US Housing Market Index, April
  May 3, 2016
  • US Motor Vehicle Sales, April
  • Eurozone Producer Price Index, March
  • UK CIPS/PMI Manufacturing Index, April
April 19, 2016
  • US Housing Starts, March
  May 4, 2016
  • US ADP Employment Report, April
  •  US International Trade, March
  • US Productivity and Costs, Q1 2016
  • US Services PMI, April
  • US ISM Non-Mfg Index, April
  • US Factory Orders, March
  • Eurozone Composite PMI, April
  • Eurozone Retail Sales, March
  • China’s General Services PMI, April
April 20, 2016
  • US Existing Home Sales, March
  • UK ILO Unemployment Rate, February
  • UK Labour Market Report, March
  • Japan’s Trade Balance, March
  May 5, 2016
  • UK CIPS/PMI Services Index, April
April 21, 2016
  • US FHFA House Price Index, February
  • US Philadelphia Fed Business Outlook Survey, April
  • US Chicago Fed National Activity Index, March
  • US Leading Indicators, March
  • European Central Bank Monetary Policy Announcement
  • Eurozone Consumer Confidence Flash, April
  • UK Retail Sales, March
  May 6, 2016
  • US Employment Situation, April
  • Japan’s Composite PMI, April
April 22, 2016
  • US Manufacturing PMI, April
  • Eurozone Composite PMI, April
  • Japan’s Manufacturing PMI, April
  • Japan’s Tertiary Index, February
  May 10, 2016
  • US Trade Balance, March
  •  China’s Consumer Price Index, April
  •  China’s Producer Price Index, April
  •  UK Trade Balance, Marc
April 25, 2016
  • US New Home Sales, March
  • US Dallas Fed Mfg Survey, April

US Fixed Income Markets - Overview

US Treasury prices weakened in March, but recovered off intra-month lows, with the yield of the 10 year benchmark paper settling at 1.79% on March 31 as against 1.74% on February 29. Bonds were put under pressure as gains in crude oil prices and domestic equities, comments by some US central bank officials, and encouraging domestic economic indicators raised hopes of further interest rate hikes by the US Federal Reserve (Fed). Sentiment for bonds was dented further after the European Central Bank (ECB) Chief Mario Draghi said that he did not expect any further interest rate cuts by the Eurozone’s central bank. However, bonds staged a recovery after the US Fed kept interest rates unchanged and scaled back its rate hike forecast for 2016 to two compared with four times predicted earlier. Bonds also received a shot in the arm after the US Fed expressed concerns about the state of global financial markets. Some losses were recovered as news of explosions in Brussels airport aided sentiment for safe-haven Treasuries.

US 10 Year Govt. Bond Yield


Learning Centre– Interpreting bond ratings

Bonds issued by corporations are rated by credit rating agencies. Most debt securities receive a rating, which is an alphanumeric grade on the bond’s credit quality, from at least one of the big three credit rating agencies - Standard and Poor’s, Moody’s and Fitch Investors Service. This note highlights how the rating impacts the issuer and what the investor can glean about the bond’s credit quality from its assigned rating.

When assigning the rating, the credit rating agency considers characteristics of the issuing firm and features of the specific bond to determine the probability of default. Some aspects examined would, for example, be the financial health of the issuer and macro-economic factors such as inflation over the life of the issue. When examining financial health, the credit rating agency closely scrutinises variables such as profitability, company size and cash flow coverage. Some variables that may adversely affect the rating include historically high financial leverage and earnings instability.

The rating has ramifications on the marketability and interest rate of the issue. As a lower rating indicates higher default risk, the issuer offers the bonds at a higher interest rate to compensate the investor for bearing the risk. This makes debt financing more expensive for the firm. Investors should be weary when subscribing to lower rated papers, and are advised to do so only after conducting thorough due diligence and if they have sufficient risk-taking ability. The rating once assigned need not remain the same. The credit rating agency periodically reviews the rating and may revise it.


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