October 2015 | srei
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October 2015

Indian Economy Review

Global financial institutions remain largely upbeat on India’s growth story

International Monetary Fund (IMF) expects India to grow 7.3% this year, lower than the 7.5% forecast in July; nevertheless, it expects India to remain the world’s fastest growing economy as it benefits from the recent policy reforms, consequent pick-up in investment and lower commodity prices. IMF also pointed out that India needs to take further policy action to support external and fiscal stability in future and focus on revenue-side measures and structural reforms to sustain strong growth. The World Bank retained India's economic growth forecast at 7.5% for 2015-16, but marginally lowered projections for 2016-17 and 2017-18 to 7.8% and 7.9%, respectively. The Organisation for Economic Co-operation and Development (OECD) said India is witnessing "firming" growth prospects, even as most of the major economies, including the US, are seeing signs of moderation. Moody’s projected Indian economic growth at 7% in the current fiscal and 7.5% in the next fiscal, and said that GDP growth and low oil prices will drive up fuel consumption over next 18 months.

The Finance Ministry expressed confidence that Indian GDP will expand to over 7.5% in the current fiscal and signaled at more reforms measures to push growth. Niti Aayog Vice Chairman Arvind Panagariya said the Indian economy is poised to grow over 8% in 2015-16. India jumped 12 spots from 142nd rank last year to 130th in the latest rankings compiled by the World Bank for ‘ease of doing business’. Meanwhile, Standard & Poor's affirmed its 'BBB-' long-term and 'A-3' short-term sovereign credit ratings for India; the outlook remains stable. It also ruled out any upgrade for the next two years.

Domestic GDP Growth


Consumer inflation rises sharply in September

India's retail inflation, based on the consumer price index (CPI) for September, rose to 4.41%, from 3.74% recorded for August, on the back of higher food prices. However, wholesale inflation remained in negative territory, falling 4.54% in September as against a decline of 4.95% in August. According to RBI’s latest quarterly inflation survey, mean household inflationary expectations for three months ahead rose by 60 basis points (bps) to 10.7% from the June 2015 survey; the one-year ahead mean inflation expectation is higher at 11.1%.

Global commodity slowdown dents government’s divestment plans

Minister of State – Finance Jayant Sinha said the government has cut its disinvestment target for this fiscal because of the global commodity slowdown. Department of Disinvestment has suggested tax incentives for small investors to invest in the equity market; separately, it wants flexibility in deciding the day for stake dilution for offer-for-sale. The government is drawing up a formal policy regarding stake sale in state-run companies. Government may sell 10% stake in Coal India in tranches. Further, it has embarked on global roadshows at four locations, including the US and the UK, to attract investments for its stake sale in NTPC and BEL. Finance Ministry is planning IPOs of state-owned companies - Hindustan Aeronautics, RINL and THDC - and raising more money from its central public sector enterprises exchange traded fund (CPSE ETF). Meanwhile, the government will soon set up a high-level committee headed by the cabinet secretary that will oversee strategic divestments.

Other major developments

The Construction Industry Development Board of Malaysia proposed to invest $30 bn in urban development and housing projects in India. Japan offered India $15 bn for the bullet train project. India and Germany signed a deal to fast-track business approvals. Germany to provide loans worth 1 bn euros at concessional rates to India’s solar energy sector. Government announced a credit of $10 bn to Africa, over and above the ongoing credit programme. India and the Maldives decided to boost cooperation in various fields, including defence, security, energy and health. UK government decided to invest nearly 50 mn pounds over five years towards skilling initiatives in India. Finance Ministers from India and other G-20 countries endorsed the final detailed action plan for putting in place a coherent and transparent global tax regime to curb artificial profit-sharing ways.

President Pranab Mukherjee signed ordinances to amend the Arbitration and Conciliation Act and enforce the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Bill, 2015. Prime Minister Narendra Modi said the government may announce a gold monetisation scheme, along with other development plans, ahead of Diwali; also said there will be no interviews for central posts belonging to Group B, C and D categories from January 2016.

Finance Minister Arun Jaitley promised a rational tax rate for individuals and lowering of corporate tax to 25% flat in four years, beginning next fiscal; exemptions – other than those meant to encourage savings – may also be removed. The Finance Ministry met foreign portfolio investors (FPIs) and domestic investors to identify measures needed to further simplify processes and increase retail participation in financial markets. Further, it asked public sector banks to review their internal risk -management process to prevent frauds. It also asked all profit making public sector undertakings for a minimum dividend of 30% of post-tax profit for 2015-16. The ministry said the proposed GST law model code will be put up in public domain by late November.

Government cleared 33 foreign direct investment (FDI) proposals worth Rs 8,190 cr. It also cleared 14 foreign investment proposals, including that of Lupin Ltd and Alkem Laboratories Ltd. Further, it decided to speed up clearances for FDI proposals and is also in process of simplifying rules governing such proposals. It also decided to streamline approvals for construction projects in urban areas to enable time-bound and hassle-free project clearances. The government notified the automatic FDI route for white-label ATMs. It also notified ‘Mid Day Meal Rules, 2015’ which now provide for monthly testing of meals on a random basis by accredited labs, among others. Further, it collected Rs 4,147 cr during the 90-day black money disclosure compliance window, which is higher than the previously announced amount of Rs 3,770 cr. The government extended duty incentives to several products, including textiles and electronics, to boost exports.

The government cleared the plan to restructure Rs 4.3 lakh cr loans of nine state power distribution companies. It assured industry stakeholders of resolving regulatory and financing issues in the infrastructure sector. It also October 2015 4 notified rules that will allow telecom operators to trade spectrum and stuck to its March 2015 price benchmark as the basis for companies to sell CDMA airwaves that were allocated to them. Further, it approved one-time financial assistance for "physically incomplete and languishing" national highway (NH) projects. The government imposed stock limits on pulses held by licenced food processors, importers, exporters as well as large departmental retailers. It also extended the validity of environment clearance (EC) from five to seven years. The government set up six expert panels for another overhaul of the Companies Act 2013; also set up a panel to simplify Income Tax laws. It released its draft civil aviation policy for inputs from stakeholders before finalisation. Labour Ministry, in its revised draft of the Industrial Relations Bill, proposed that employers will have to pay compensation to workers who would be retrenched due to prolonged illness.

Major regulatory developments

RBI gave its nod to 20 entities for registration for seeking financial assistance from the Depositor Education and Awareness Fund. It also enabled National Pension System (NPS) as an investment option for Non-Resident Indians (NRIs) under FEMA 1999. Central Board of Direct Taxes (CBDT) issued detailed guidelines on transfer pricing cases, expecting to bring uniformity in determining arm’s length price in similar instances. It also widened the scope of tax exemption for Infrastructure Debt Fund (IDF) – NBFC. Central Vigilance Commission asked the RBI and Indian Banks Association to note multiple transactions of smaller amounts and ensure KYC norms to check fraudulent forex transactions. Directorate General of Civil Aviation (DGCA) drafted a new set of rules for air ambulance services. Telecom Regulatory Authority of India (TRAI) stuck with its decision to impose a penalty of Re 1 for dropped calls from January 1 next year. National Pharmaceutical Pricing Authority (NPPA) capped prices of 18 formulation packs. The Supreme Court allowed the use of Aadhaar number for MGNREGS, Pradhan Mantri Jan Dhan Yojana, pensions by central and state governments and the Employees’ Provident Fund Scheme.

Major economic indicators released during the month:

India’s industrial production grew 6.4% for August, an improvement over the 4.1% growth registered in the previous month. The country’s trade deficit narrowed to $10.48 bn in September, from $12.5 bn in August mainly on lower gold and oil imports; exports fell 24.33% to $21.84 bn in September, while imports fell 25.42% to $32.32 bn. India’s fiscal deficit in the first half of the current fiscal stood at Rs 3.79 lakh cr, or 68.1% of the Budget estimate for the whole year; the deficit in the year ago period stood at 82.6% of the annual Budget estimate. Indirect tax collection was up 35.8% to over Rs 3.24 lakh cr in the first half of the current fiscal, reflecting growth in economic activity. India’s Nikkei manufacturing purchasing managers’ index (PMI) fell to 51.2 in September, down from 52.3 in August, while services PMI dropped to 51.3 in September from 51.8 in August. SBI monthly composite index increased to 50.8 in October from 48.4 in September.

Indicators Current Previous
Monthly WPI Inflation -4.54% (September 2015) -4.95% (August 2015)
Industrial Growth 6.4% (August 2015) 4.1% (July 2015)
Exports $111.09bn (April-August 2015) $132.53bn (April-August 2014)
Imports $168.61 bn (April-August 2015) $190.75 bn (April-August 2014)
Trade Balance -$57.52bn (April-August 2015) -$58.22 bn (April-August 2014)
Gross Tax Collections Rs 596,884cr (April-September 2015) Rs 490,618cr (April-September 2014)

IIP Growth

IIP Growth

  • India’s industrial production grew by 6.4% for the month of August, an improvement over the 4.1% growth registered in the previous month.

IIP-Core Sector Growth

Core IIP Growth

  • India’s core sector growth increased to 3.2% in September after a slower 2.6% in August mainly due to a strong performance in electricity generation and fertiliser production.

Fiscal Deficit

Fiscal Deficit

  • India’s fiscal deficit in the first half of the current fiscal stood at Rs 3.78 lakh cr, or 68.1% of the Budget estimate for the whole year; the deficit in the year ago period stood at 82.6% of the Budget estimate of 2014-15.

Global Economy Review

Downside risk looms over global economy

The International Monetary Fund (IMF) slashed its global economic growth forecast for 2015 to 3.1%, from 3.3% projected in July, citing weaker prospects for emerging economies, including China and a decline in commodity prices. The IMF also added that downside risks appear more pronounced than they did just a few months ago.

US Fed hints possible rate hike in December

US Federal Reserve (US Fed) kept rates unchanged in its latest policy meeting, but hinted at a possible hike in December. The central bank also downplayed the recent global financial market turmoil and said the US labour market was still healing, despite a slower pick-up in employment. US growth slowed to 1.5% year-on-year (YoY) in Q3, after expanding 3.9% a quarter ago. The Fed’s Beige Book showed the stronger dollar was hurting the manufacturing sector in mid-August through early October.

World GDP Growth

World GDP Growth

Major Indicators Current Previous Major Global Central Bank Major Global Central Bank
US GDP 1.5% Q3 2015 3.9% Q2 2015 US Fed Funds Rate 0-0.25%
US unemployment 5% October 2015 5.1% September 2015 Bank of England 0.50%
UK GDP 2.3% Q3 2015 2.4% Q2 2015 European Central Bank 0.05%
Euro Zone GDP 1.5% Q2 2015 1.2% Q1 2015 Japan Benchmark Rate 0-0.10%
Japan GDP -1.2% Q2 2015 3.9% Q1 2015    
China GDP 6.9% Q3 2015 7.0% Q1 2015    
Singapore’s GDP 1.4% Q3 2015 2.8% Q1 2015    

Key US economic indicators

  • Trade deficit widened to $48.33 bn in August, from $41.81 bn in July.
  • Industrial output slipped 0.2% in September, after a revised 0.1% dip in August; industrial capacity use fell to 77.5% in September from 77.8% in August.
  • Non-farm payrolls rose to a seasonally adjusted 271,000 in October from a revised 137,000 in the preceding month; unemployment rate fell to 5% in October, compared with 5.1% in September.
  • Retail sales increased by a seasonally-adjusted 0.1% in September, compared with a revised flat reading in August.
  • The Consumer Price Index (CPI) inflation fell 0.2% in September, after slipping 0.1% in August.
  • New home sales fell 11.5% to a seasonally-adjusted annual rate of 468,000 units in September, the lowest since November 2014, compared with revised 529,000 units in August, while existing home sales jumped 4.7% to an annual rate of 5.55 mn in September, from a slightly downwardly revised 5.30 mn in August.


ECB hints at fresh stimulus measures

The European Central Bank (ECB) - in its latest policy meeting - signaled fresh stimulus measures to boost the ailing economy, while keeping rates steady. The ECB President said that the central bank could expand its bond-buying programme or cut rates further to a record-low to fight tepid inflation and sagging growth. The ECB survey showed that the Europe's financial sector is showing further signs of mending and banks are increasingly competing for custom by easing credit standards.

Key Eurozone economic indicators:

  • Euro zone recorded a trade surplus of 11.2 bn euro in August 2015, compared with a 7.4 bn euro surplus in August 2014.
  • The manufacturing purchasing manager index (PMI) stood at 52 in October, steady compared with September.
  • Industrial output fell 0.5% month-on-month in August, compared with a revised fall of 0.8% in July.
  • Annual inflation returns to zero in October, after declining 0.1% in September.
  • The seasonally-adjusted unemployment rate was 10.8% in September, down from 10.9% in August.

UK economic growth slows in Q3 2015

UK’s economic growth slowed to 0.5% quarter-on-quarter (QoQ) in Q3, following 0.7% growth in Q2, due to a recession in manufacturing and lower construction output. The economy grew 2.3% YoY, the lowest rate since Q3 2013. The slowdown has raised uncertainty over prospects of a rate hike in the near future. Also inflation, which fell 0.1% YoY in September, still remained far from the Bank of England’s target of 2%, thereby fuelling uncertainty over rate hike.

Key UK economic indicators:

  • The visible trade gap shrunk to 11.1 bn pounds in August, from 12.2 bn pounds in July.
  • Industrial production grew 1% from July, reversing a 0.3% drop in the prior month.
  • The CPI inflation rate fell -0.1% in September, from zero in August.
  • The ILO jobless rate fell to 5.4% in three months to August, from 5.6% in the March-to-May period; number of unemployed persons declined 79,000 in the past three months as employment grew 140,000.


Asia-Pacific region to be impacted by China’s slowdown

The IMF warned that a sharp economic downturn in China will hit the Asia-Pacific region hard. The World Bank expected the East Asia and Pacific region to grow 6.5% in 2015 and 6.4% in 2016, moderating from 6.8% last year, due to risk of a sharp slowdown in China and possible spillovers from expected hike in US interest rates.

China continue with stimulus to confront slowdown

China remained persistent in its efforts to prop growth by easing its monetary policy. The People's Bank of China lowered the benchmark lending and deposit interest rates by 25 basis points (bps) to 4.25% and 1.5% and cut the banks’ reserve requirement ratio by 50 bps. The country’s economic growth eased to 6.9% (YoY) in Q3 2015, the weakest since 2009, compared with 7% growth in the previous quarter. A Chinese central bank official said that the country would be able to keep annual economic growth at 6-7% for the next five years.

Key Chinese economic indicators

  • Exports fell 3.7% in September from a year earlier in dollar terms, following a 5.5% drop in August, while imports fell 20.4% in September from a year earlier, compared with a 13.8% drop in August; the country’s trade surplus rose to $60.3 bn in September, from $60.2 bn in August.
  • The official PMI came in at 49.8 in October, same as in the previous month, while official services PMI fell to 53.1 in October from 53.4 in September.
  • Industrial output slowed to 5.7% in September, following a 6.1% rise in August.
  • Unemployment rate rose to 4.05%, at end-September, compared with 4.04% in June.
  • Retail sales rose 10.9% YoY in September, compared with 10.8% growth in August.
  • The CPI inflation rose 1.6% in September from a year earlier, slower than a 2% rise in August.

Bank of Japan keeps monetary policy steady

Despite growing signs of recession, the Bank of Japan held off on expanding its stimulus package in its latest policy meeting. The IMF said Japan should raise the sales tax to 10% from 8% in April 2017 to deliver fiscal sustainability. Meanwhile, the government urged corporates to boost capital investment.

Key Japanese economic indicators:

  • Exports rose 0.6% YoY to 6.42 trillion yen in September, while imports fell 11% to 6.53 trillion yen, thereby resulting in a trade deficit of 114.5 bn yen, compared with a deficit of 962 bn yen, a year earlier.
  • Industrial production fell 1.2% in August, further to 0.5% decline in July.
  • Manufacturing PMI rose to 52.5 in October, from 51.0 in September.
  • Retail sales fell 0.2% in September from a year earlier, but rose 0.7% from the previous month after flat growth in August.
  • The CPI inflation fell 0.1% in September from a year earlier, same as that in the previous month.
  • Unemployment rate remained steady from the previous month, at 3.4% in September.

Singapore avoids technical recession

Singapore’s economy posted growth of 0.1% (QoQ) in Q3, after contracting 2.5% in Q2, thereby avoiding technical recession. The economy expanded 1.4% (YoY) in Q3, compared with 2% growth in Q2. The Monetary Authority of Singapore (MAS), which uses the exchange rate rather than interest rates to set policy, reduced the rate of appreciation for the Singapore dollar even as it maintained its policy of "modest and gradual appreciation" for the currency.

Key economic indicators

  • Industrial production fell 4.8% (YoY) in September, following a 7.1% fall in August.
  • Core inflation rose 0.6% (YoY) in September, following a 0.2% rise in the preceding month.

Domestic Fixed Income Review

Domestic G-sec Yield

6 Month LIBOR

Interbank call money rates largely hovered near the repo rate of 6.75% during the month. Inflows from month-end government spending and periodic repo auctions conducted by the RBI kept the liquidity situation comfortable. Reversals of reverse repo auctions held in some earlier sessions also helped keep call rates low. However, rates saw some pressure arising from outflows towards payment of gilts purchased in some bond sales, state development bonds and value-added tax payments. Liquidity was also strained to a certain extent as banks with excess funds opted to lend to the RBI, through its reverse repo auctions, thereby forcing banks short of funds to borrow in the overnight market at a higher rate.

Government security prices (gilts) retreated in October, with yield on the 10-year benchmark - the 7.72%, 2025 paper - ending at 7.64% on October 30, 2015, compared with 7.54% on September 30, 2015. Earlier in the month, sentiments were positive as a result of the greater-than-expected interest rate cut by the RBI. Bond prices also rose in response to the September US non-farm payrolls data which came in weaker-than-expected. A decline in global crude oil prices and US benchmark treasury yields supported gilts further. Prices also received a boost on expectation of increased demand from foreign portfolio investors after the first tranche of fresh gilt limits were released. Sporadic value buying also aided gilts to a certain extent.

Further gains were however restricted, following the outcome of the US Federal Reserve meeting. The US central bank kept the federal funds rates target range unchanged at 0.00-0.25% while adding that a decision at its next policy meeting in December would be determined by assessment of economic data such as employment and inflation. Earlier, caution ahead of domestic consumer inflation figures and fresh supply of dated securities in some weekly auctions kept gilts on the lower side. Intermittent profit taking and weakness in the rupee against the dollar also weighed on gilts.

Major regulatory developments in the month

Among major developments, the government to start issuing sovereign gold bonds from November 26 and will start accepting applications for the bonds from November 5-20; the annual interest rate on the instrument has been set at 2.75%. It also proposed to convert 75% of loans given to power distribution companies into state government bonds. Further, it announced that Indian companies will be exempt from paying capital gains taxes for their rupee-denominated offshore bonds, or ‘masala’ bonds sold abroad in case of rupee appreciation. However, it clarified that the interest on these bonds will attract a withholding tax of 5%. Government is working on setting up an independent Public Debt Management Agency (PDMA) to manage the Centre’s borrowing programme. RBI Governor Raghuram Rajan said the central bank is examining the possibility of allowing products of credit to be ordered on internet marketing platforms. RBI Deputy Governor HR Khan said the central bank is considering new measures in debt markets, including a trading platform for repos and corporate bonds and looking at building bond indices. RBI formally announced denominating foreign investors’ limit in government debt in rupee terms and said such investments will be capped at a maximum of 20% of the outstanding of any individual security. Further, it started selling the longest ever government bonds with 40-year maturity from October 23. RBI is planning to set up a bond index to attract more investments. India Index Services & Products (IISL) launched four new fixed income indices to track government securities (GSecs) - Nifty 15 year and above G-Sec index, Nifty Composite G-sec index, Nifty 4-8 year GSec index and Nifty 11-15 year GSec index.


Fixed Income Indicators

Rates & Liquidity

  30-Sep-15 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) 12036 17440 9037
LAF o/s Rev Repo (Rscr) 7692 2044 20907

Overnight                                         Rate(%)

  30-Sep-15 1 Week Ago 1 Month Ago
Mibor 6.79 6.89 7.04
Call 7.25 7.65 6.80
CBLO 6.85 6.90 6.60
OIS 1Y 7.05 7.02 7.03
OIS 5Y 6.78 6.73 6.76

CDs                                                             Yield(%)

  30-Oct-15 1 Week Ago 1 Month Ago
1-Month 7.08 7.03 7.07
3-Month 7.26 7.24 7.07
6-Month 7.46 7.38 7.20
1-Year 7.53 7.47 7.31

CPs                                                   Yield(%)

  30-Sep-15 1 Week Ago 1 Month Ago
1-Month 7.42 7.48 7.28
3-Month 7.72 7.71 7.30
6-Month 8.34 8.38 7.91
1-Year 8.36 8.30 8.36

Short Term Bonds                                        Yield(%)

  30-Sep-15 1 Week Ago 1 Month Ago
1 Y G-Sec 7.20 7.17 7.19
1 Y AAA 7.80 7.73 7.70
1 Y AA 8.32 8.25 8.22
2 Y G-Sec 7.41 7.43 7.44
2 Y AAA 7.86 7.85 7.93
2 Y AA 8.33 8.32 8.40

Long Term Bonds                          Yield(%)

  30-Sep-15 1 Week Ago 1 Month Ago
5 Y G-Sec 7.68 7.65 7.63
5 Y AAA 8.15 8.13 8.26
5 Y AA 8.80 8.78 8.91
10 Y G-Sec 7.64 7.58 7.54
10 Y AAA 8.12 8.10 8.15
10 Y AA 8.94 8.92 8.97

Top 5 Graded G Secs                                   Yield(%)

  30-Sep-15 1 Week Ago 1 Month Ago
08.40% CGL 2024 7.64 7.63 7.54
08.60% CGL 2028 7.79 7.79 7.69
08.27% CGL 2020 7.67 7.66 7.59
08.15% GS 2026 7.68 7.68 7.63
08.27% CGL 2020 7.86 7.85 7.79


  30-Sep-15 1 Week Ago 1 Month Ago
USD/INR 65.27 64.83 65.58
EURO/INR 71.67 72.06 73.80
GBP/INR 99.93 99.89 99.53
100 JPY/INR 53.92 53.79 54.80
USD/EURO 0.91 0.91 0.90


10 Year G-sec movement


Corporate Bond Yield


Corporate AAA, AA Bond Spreads


Economic Events Calendar

November 11, 2015
  • US Monthly Budget Statement, October
  • UK Claimant Count Rate, October
  • UK Employment Report, October
  • Japan’s Machine Orders, September
  • Japan’s Producer Price Index, October
  November 27, 2015
  • Eurozone EC Economic Sentiment, November
  • UK GDP (Revised), Q3 2015
November 12, 2015
  • Eurozone Industrial Production, September
  • UK RICS House Price Balance, October
  • India’s Index of Industrial Production, September
  • India’s Consumer Price Index Inflation, October
  November 28, 2015
  • UK Nationwide House Prices, November
November 13, 2015
  • US University of Michigan Confidence, November
  • US Producers Price Index – Final Demand, October
  • US Retail Sales, October
  • US Business Inventories, September
  • Eurozone GDP, Q3 2015
  • Eurozone Trade Balance, September
  November 30, 2015
  • US Dallas Fed Mfg. Activity, November
  • US Chicago PMI, November
  • US Pending Home Sales, October
  • UK GfK Consumer Confidence, November
  • UK Net Consumer Credit, October
  • China’s Manufacturing PMI, November
  • Japan’s Manufacturing PMI, November
  • India’s GDP estimate, July-September
November 16, 2015
  • US Empire State Manufacturing (Mfg.) Survey, November
  • Eurozone Consumer Price Index, October
  • UK Trade Balance, September
  • India’s Wholesale Price Index Inflation, October
  December 1, 2015
  • US ISM Mfg. Index, November
  • US Construction Spending, October
  • Eurozone Markit Manufacturing PMI, November - Final
  • Eurozone Unemployment Rate, October
  • UK CIPS Manufacturing PMI, November
  • India’s RBI Fifth Bi-Monthly Monetary Policy Review
  • India’s PMI Manufacturing Index, November
November 17, 2015
  • US Consumer Price Index, October
  • US Industrial Production, October
  • US NAHB Housing Market Index, November
  • Eurozone ZEW Survey Expectations, November
  • UK Producer Price Index, October
  • UK Consumer Price Index, October
  December 2, 2015
  • US Beige Book
  • US ADP Employment Report, November
  • US Productivity and Costs, Q3 2015
  • US Nonfarm Productivity, Q3 2015
  • Eurozone Consumer Price Index, November
  • Eurozone Producer Price Index, October
  • UK Markit/CIPS Construction PMI, November
  • Japan’s Composite PMI, November
November 18, 2015
  • US Philadelphia Fed Business Outlook Survey, November
  • US Leading Indicators Index, October
  • UK Retail Sales, October
  December 4, 2015
  • US Employment Situation, November
  • US International Trade, November
  • Eurozone GDP (Preliminary), Q3 2015
November 20, 2015
  • India’s CPI for rural and farm labourers, October
  December 7, 2015
  • Eurozone Sentix Investor Confidence, December
November 23, 2015
  • US Chicago Fed National Activity Index, October
  • US Existing Home Sales, October
  December 8, 2015
  • US Consumer Credit, October
  • UK NIESR GDP Estimate, November
  • UK Industrial Production, October
November 24, 2015
  • US GDP (Preliminary), Q3 2015
  • US Consumer Confidence, November
  • US Markit Manufacturing PMI, November
  • US S&P Case-Shiller HPI, September
  • Eurozone Markit Manufacturing, Services & Composite PMI, November
  • Bank of Japan’s Monetary Policy Minutes
  December 9, 2015
  • US Wholesale Inventories, October
  • China’s Consumer Price Index, November
  • China’s Producer Price Index, November
  • Japan’s Machine Orders, October
November 25, 2015
  • US Personal Income & Outlays, October
  • US New Home Sales, October
  • US Durable Goods Orders, October
  • US Markit Composite & Services PMI, November
  • US University of Michigan Confidence, November - Final
  December 10, 2015
  • US Import and Export Prices, November
  • Bank of England Monetary Policy Review
  •  UK Merchandise Trade, October
  • Japan’s Producer Price Index, November
November 26, 2015
  • Japan’s Unemployment Rate, October
  • Japan’s Consumer Price Index, October

US Fixed Income Markets - Overview

US treasuries weakened in October, with the yield on the benchmark 10-year bond settling at 2.15% on October 30, as against 2.06% on September 30. US treasury prices fell as release of domestic data such as industrial production and new home starts data bolstered the view that the US central bank may hike interest rates in its December policy meeting. Prices dipped further after China slashed interest rates in a bid to stimulate its economy. Selling pressure was also generated by San Francisco Federal Reserve President John Williams, who said in a television interview that he saw US rates rising in the near future. However, a slew of weak US economic indicators, such as non-farm payrolls, durable goods orders, new home sales, retail sales, and producer prices rekindled demand for bonds, and prevented a steep fall in prices. Among global cues, disappointing Japanese and Chinese trade data revived worries over world economic growth and supported treasury prices. Bonds also gained after ECB Chief Mario Draghi hinted at a possible boost to stimulus measures in the Eurozone.

US 10 Year Govt. Bond Yield


Learning Centre– The difference between stated yield and effective yield

Investors often get attracted by advertisements on non-convertible debentures seen in newspapers; such ads promise investors a certain interest on bonds issued by corporates. Investors need to understand that such ads only mention the annual ‘stated’ yield – which would differ from what he/she earns at the year-end. This difference arises as bonds release interest payments at varied frequencies – from 3-6 months. Hence, to arrive at the exact interest payment due at the year-end, the investor should know the difference between the stated yield and effective yield. Greater the compounding frequency, wider will be the difference between the stated and effective annual yield. Take a hypothetical example of a bond that has a stated annual yield of 8%. To calculate the effective annual yield, investors can use the below equation:

Effective annual yield = (1 + periodic interest rate)m – 1, where periodic interest rate is the interest earned over a given period (month, quarter, semi-annual) and ‘m’ is the number of periods in the year.

1) Suppose the interest is payable every 6 months, the periodic interest rate will be 4% (8/2) and the number of periods will be 2. Therefore
Effective annual yield = (1 + 0.04)2 – 1 = 8.16%

Using this framework to invest in bonds will help investors access more information and increase the odds of a successful investment.

2) Suppose the interest is payable every 3 months, the periodic interest rate will be 2% (8/4) and the number of periods will be 4. Therefore
Effective annual yield = (1 + 0.02)4 – 1 = 8.24%

The only time the effective and stated yields remain the same is when the compounding frequency is also annual, as shown below.
Effective annual yield = (1 + 0.08)1 – 1 = 8%

Investors should therefore pay close attention to the fine print, as this is where the compounding frequency is usually mentioned.


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