March 2015 | srei
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March 2015

February 2015

Highlights of RBI’s first bi-monthly monetary policy statement for 2015-16

  • Repo rate under the liquidity adjustment facility (LAF) unchanged at 7.50%.
  • Consequently, the reverse repo rate under the LAF unchanged at 6.50%, and the marginal standing facility (MSF) rate and the Bank Rate at 8.50%.
  • Cash Reserve Ratio (CRR) of scheduled banks unchanged at 4.0% of net demand and time liabilities (NDTL).
  • Continued to provide liquidity under overnight repos of 0.25% of bank-wise NDTL at the LAF repo rate and liquidity under 7-day and 14-day term repos of up to 0.75% of NDTL of the banking system through auctions.
  • Continued with daily variable rate term repo and reverse repo auctions to smooth liquidity.
  • Estimated GDP growth at 7.8% in FY’16, up from 7.5% in FY’15.
  • Forecasted CPI inflation at 5.8% by March 2016.
  • Future rate cuts will depend on interest rate reduction by banks.
  • RBI to formulate scheme for market making by primary dealers in semi-liquid and illiquid G-Secs.

Indian Economy Review

IMF expects India to overtake China in economic growth

The Central government’s reforms to boost the economy and positive global factors, such as a drop in crude oil prices, have well placed the Indian economy on a high growth path. The International Monetary Fund (IMF) sees India's GDP growth at 7.5% for FY16 and 7.2% for FY15, expecting to exceed China’s growth rate; however, it has warned about global financial market volatility that may arise from unexpected developments in the course of the US monetary policy normalisation. Organisation for Economic Cooperation and Development (OECD) said India is set to grow 7.7% this year and 8% in 2016, while the Asian Development Bank (ADB) projected India's economy to grow 7.8% in 2015-16. Finance Minister Arun Jaitley too has expressed optimism that India's economy needs to reach an annual growth rate of 9-10% and then sustain that activity for more than 10 years in order to improve infrastructure and bring down rampant poverty.

Domestic GDP Growth

Retail inflation rises slightly in February

India’s consumer price inflation rose to 5.37% in February compared with an upwardly revised inflation reading of 5.19% in January. The Wholesale Price Index (WPI)-based inflation for February was -2.06% compared with -0.39% in January and 5.03% in February last year, mainly on the back of decline in crude oil prices. In an important development, the government and the RBI signed a monetary policy framework deal under which the RBI will aim to contain consumer inflation within 6% by January 2016 and at 4% with a band of plus or minus 2% for all subsequent years.

Government starts process to meet the new divestment target

The government firmed up a list of public sector undertakings (PSUs) to be divested in FY2016, starting with BHEL in April, in a bid to meet the new fiscal’s target of Rs 69,500 cr. The Ministry of Finance (MoF) is also considering IPOs in Hindustan Aeronautics, Rashtriya Ispat Nigam and THDC India. Meanwhile, Divestment Secretary Ms Aradhana Johri said that the government will consider a stake sale in ONGC only after the subsidy sharing mechanism between upstream companies and the centre is finalised, and oil prices bounce back. Separately, the government decided to reduce its stake in public sector banks to 52% in a phased manner to ensure that capital needs of banks are taken care of.

Government likely to reap a windfall from coal mines and telecom spectrum auctions

The government coffers are likely to be boosted with the recent coal block auction of 33 blocks, assuring it a sum of over Rs 2 lakh cr; the next round of auctions will be in April. Further, the government received provisional bids worth more than Rs 1.09 lakh cr at the end of 110 rounds of bidding in the spectrum auction.

Other major developments

The government has decided to fast-track 10 power projects worth Rs 90,000 cr planned by state-owned companies. It received investment proposals worth Rs 25,000 cr for electronic manufacturing in India. The Rail Ministry received investment commitments worth Rs 10,000 cr from private sector players for development of 19 projects. The Cabinet Committee on Economic Affairs (CCEA) approved six highway projects involving a total investment of Rs 12,646 cr. The Union Cabinet cleared a law proposed in the budget to curb black money, and also decided to sign the financial information sharing pact with the US that will help trace illegal wealth. Further, it approved Rs 33,000 cr for states as compensation towards central sales tax for three years. The Cabinet also approved the supply of cheap liquefied natural gas (LNG) for power plants. In addition, it approved the proposal to amend the Carriage by Air Act, 1972, which enables it to revise the liability limits of airlines as per the Montreal Convention. The Civil Aviation Ministry tightened the eligibility criteria norms for flying international routes by increasing the domestic flying credits (DFC) eligibility to 300 DFC from the current 200.

India and Russia have agreed to strengthen ties in the information and broadcasting sector with the exchange of media personnel and cooperation in the social media space. Germany will give 1 bn euro loan to India over the next six years to augment and strengthen the nation's renewable power transmission infrastructure. The government will invest about Rs 62,000 cr in the computer chip-manufacturing facilities to be set up in Gujarat and Uttar Pradesh. The Centre has allocated the development of 17 mega food parks across the country to state governments and private firms envisaging an investment of over Rs 6,000 cr.

The MoF notified the Advance Pricing Agreement (APA) rules governing rollback provisions in transfer pricing cases. Rajya Sabha passed Coal Mines (Special Provisions) Bill, and Mines and Minerals (Development and Regulation) Amendment Bill, 2015. The house also passed the Insurance Bill which seeks to raise the FDI cap to 49%. The government has made it mandatory for all software applications and services of the government to be built using open source software for the Digital India Drive. The MoF said the next phase of the Pradhan Mantri Jan Dhan Yojana (PMJDY) will be focused on mobilisation of financial savings to reverse the decline in the savings rate. Financial Services Secretary Hasmukh Adhia said that the proposed Micro Units Development Refinance Agency (MUDRA) Bank will be set up first as a subsidiary of Small Industries Development Bank of India (SIDBI), and then as a bank through an act of Parliament. The government gave its approval to seven state-run banks to tap markets for raising the capital needed for expansion and meeting global capital adequacy norms. The government said that foreign companies investing in the construction sector will have to bring in a minimum of $5 mn within six months of the date of approval of the building plan. The government declared Air India and MTNL as sick Central Public Sector Enterprises (CPSEs); it said that five CPSEs, including three units of HMT, will be shut soon.

The Indian Railways will double the platform ticket cost and raise freight rates for several commodities with effect from April 1. It will also set up a new state-owned entity, TRANSLOC, by July to handle transport logistics. The Central Board of Direct Taxes has issued a circular clarifying that dividends declared or paid by a foreign company outside India in respect of shares that derived their value substantially from assets situated in India will not be "deemed" as income taxable in India. It also extended due date for applying roll back facility under advance pricing agreements to June 30.

Regulatory developments in the month

The RBI rejected Tata Sons' proposal to pay a higher than ‘fair value’ price to buy out its Japanese partner NTT DoCoMo’s stake in their telecom joint venture. The Competition Commission of India approved RIL’s proposed deal to sell 49% stake in a newly-formed textile firm to Chinese company RuYi. National Pharmaceutical Pricing Authority (NPPA) directed pharmaceutical companies to pass on lower excise duty benefits to consumers. The Delhi High Court restrained the government from giving Coal India the two blocks in which Jindal Steel & Power Ltd (JSPL) had emerged as a successful bidder.

Economic indicators released in the month

India’s industrial production grew 2.6% in January 2015 compared to an upwardly revised reading of 3.23% in December 2014. India’s core sector growth slowed to 1.4% in February, mainly dragged down by a contraction in the production of steel, fertilisers and refinery products, after growth of 1.8% in the previous month. India’s fiscal deficit was Rs 6.02 lakh cr in the first 11 months of FY2015 against the revised estimate of Rs 5.13 lakh cr. The government’s direct tax collections rose to Rs 6.12 lakh cr in the first 11 months of the current financial year compared to Rs 5.53 lakh cr for the same period in the last fiscal, while indirect tax revenues grew 8.4% in April-February 2015 to Rs 4.79 lakh cr. India’s trade deficit narrowed to a 17-month low of $6.85 bn in February compared with the deficit of $8.3 bn in the same period last year; exports fell 15.02% to $21.54 bn in February, while imports fell 15.66% to $28.39 bn. Current account deficit rose to $8.2 bn (1.6% of GDP) for the third quarter ended December 2014 from $4.2 bn (0.9% of GDP) for October-December 2013. India’s external debt was $461.9 bn as of end-December, up 3.5% from end-March 2014.

According to Department of Industrial Policy and Promotion (DIPP) data, FDI in India more than doubled to $4.48 bn in January, the highest inflow in the last 29 months. India’s manufacturing Purchasing Managers’ Index (PMI) declined to 51.2 points in February from 52.9 points in January, while services PMI rose to an eight-month high of 53.9 in February, up from 52.4 in January. SBI’s Composite Index rose sharply to 58.5 in March 2015 from 47.6 in February 2015, signalling the highest pace of growth in the last 48 months.

Indicators Current Previous
Monthly WPI Inflation -2.06% (February 2015) -0.39% (January 2015)
Industrial Growth 2.6% (January 2015) 3.23% (December 2014)
Exports $286.58bn (April 2014-February 2015) $284.07bn (April 2013-February 2014)
Imports $411.80bn (April 2014-February 2015) $408.92bn (April 2013-February 2014)
Trade Deficit -$125.22bn (April 2014-February 2015) -$124.84bn (April 2013-February 2014)
Gross Tax Collections Rs 9,54,953cr (April 2014-February 2015) Rs 8,92,007cr (April 2013-February 2014)

IIP Growth

IIP Growth

  • India’s industrial production grew 2.6% in January 2015 compared to an upwardly revised reading of 3.23% in December 2014.

IIP-Core Sector Growth
Core IIP Growth

  • India’s core sector growth slowed to 1.4% in February, mainly dragged down by a contraction in the production of steel, fertilisers and refinery products, after growth of 1.8% in the previous month.

Fiscal Deficit

Fiscal Deficit

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

Global Economy Review

The US Fed moves closer to rate hike

Uncertainty hovering around the interest rate hike in the US abated to some extent after the US Federal Reserve (Fed) removed the word “patient” from its guidance, signaling a rate hike as early as June 2015. The Fed, however, concluded its monetary policy meeting entailing a cautious approach and a less aggressive pace on raising rates. The Fed has suggested lowering the median estimate of 'forecasted' interest rates to 0.625% at the end of 2015 from 1.125% forecast announced earlier.

World GDP Growth

World GDP Growth

Major Indicators Current Previous Major Global Central Bank Major Global Central Bank
US GDP 2.2% Q4 2014 5.0% Q3 2014 US Fed Funds Rate 0-0.25%
US unemployment 5.5% Mar 2015 5.5% Feb 2015 Bank of England 0.50%
UK GDP 3% Q4 2014 2.8% Q3 2014 European Central Bank 0.05%
Euro Zone GDP 0.9% Q4 2014 0.8% Q3 2014 Japan Benchmark Rate 0-0.10%
Japan GDP 2.2% Q4 2014 -2.3% Q3 2014    
China GDP 7.3% Q4 2014 7.3% Q3 2014    
Singapore’s GDP 2.1% Q4 2014 2.6% Q3 2014    

Key US economic indicators

  • The current account deficit for Q4 2014 increased to $113.45 bn from $98.92 bn in the previous quarter.
  • Trade deficit shrank to a seasonally adjusted $41.75 bn in January compared with a deficit of $45.6 bn in December.
  • Industrial production rose 0.1% in February after a revised 0.3% decline in January.
  • The US employers added 126,000 jobs in March against 295,000 in February; the unemployment rate held steady at 5.5% in March.
  • Retail sales dropped 0.6% in February after declining 0.8% in January.
  • Labour productivity decreased by a seasonally adjusted 2.2% in Q4 2014 vs the preliminary forecast of a 1.8% decline; labour costs rose by a seasonally adjusted 4.1% in Q4 2014 vs an initial forecast of a 2.7% gain.
  • Consumer Price Index (CPI) growth was flat year on year (YoY) in February after slipping 0.1% in January.
  • On the housing front, existing home sales increased 1.2% in February to a seasonally adjusted annual rate of 4.88 mn compared to January’s 4.82 mn, while new home sales rose 7.8% in February to a seasonally adjusted annual rate of 539,000 (the strongest performance since February 2008) vs revised 500,000 units in the preceding month.

EURO ZONE

Eurozone gets upbeat forecast from ECB

While initiating its bond buying programme (purchasing bonds worth 60 bn euro a month until September 2016) in the month with a motive to revive the Eurozone economy, the European Central Bank (ECB) raised the region’s growth forecast for 2015 from 1% to 1.5% and stated that growth would strengthen gradually to 2.1% by 2017. The central bank, however, kept its benchmark interest rate unchanged at 0.05% in the policy meeting. ECB’s monthly bulletin reported that the Eurozone economy is gaining steam and spurring bank demand for new loans. Eurostat confirmed the estimate that the bloc’s economy grew 0.3% quarter-on-quarter (QoQ) in Q4 2014 compared with 0.2% in the previous quarter.

Key Eurozone economic indicators:

  • The trade balance stood at a surplus of 7.9 bn euros in January 2015 compared with a surplus of 0.1 bn euros in January last year.
  • Industrial production declined 0.1% in January after rising 0.3% in December.
  • Retail sales rose 1.1% on a monthly basis in January, faster than the revised 0.4% growth in December.
  • The seasonally-adjusted unemployment rate was 11.3% in February, down from 11.4% in January.
  • Annual inflation came in at -0.1% in March, up from -0.3% in February.

Bank of England expects low inflation to continue

Low Inflation in the UK is expected to continue after the minutes of Bank of England’s (BoE’s) March meeting voiced concerns that a persistently strong pound could keep inflation below the central bank’s 2% target for a prolonged period. The BoE’s quarterly inflation report showed that inflation expectations for the next 12 months fell to 1.9% in February, a 13-year low, from 2.5% in November. Inflation rate fell to a record low of 0% in February following 0.3% in January. However, BoE Governor Mark Carney said that the central bank expects its next move in interest rates to be an increase not a cut despite record low inflation. The country’s GDP growth for Q4 2014 was revised to 3% from 2.7%; the economy expanded 2.8% in the prior quarter.

Key UK economic indicators:

  • The visible trade deficit narrowed to 8.4 bn pounds in January from 9.9 bn pounds in December.
  • The public sector net borrowing, which excludes state-controlled banks, totaled 6.9 bn pounds in February, down 34% from a year earlier.
  • Factory output slipped 0.1% on the month by 1.3% YoY.
  • The jobless rate fell to 5.7% in three months to January from 6% in the quarter ended October.
  • The jobless claimant count fell to 2.4% in February from 2.5% in January.
  • Retail sales rose 0.7% (MoM) in February, best growth since November and up from 0.1% in January.

ASIA

China lowers economic growth target for 2015

China continued to face slowdown heat as the country lowered its economic growth target for 2015 to about 7% from 7.5% in the previous year. The government also lowered the annual inflation target to around 3% from 3.5% in the previous year. Premier Li Keqiang pledged to reduce the government’s role in the economy and promised more private investments. The government also announced infrastructure projects worth $260 bn to boost growth in the country.

Key Chinese economic indicators

  • Exports rose 48.3% YoY to $169.2 bn in February, while imports fell 20.5% to $108.6 bn, resulting in a trade surplus of $60.6 bn in February.
  • Annual CPI inflation rose 1.4% in February compared with a 0.8% rise in January.
  • Industrial production grew 6.8% in January-February compared with a 7.9% increase in December.
  • Retail sales growth slowed to 10.7% in January-February from a year earlier compared with 11.9% increase in December.

Japan upgrades its economic view

Observing moderate recovery trend, Japan upgraded its economic view for the first time in eight months due to improvement in the corporate sector. The Organization for Economic Cooperation and Development (OECD) too upgraded Japan’s economic growth forecasts for 2015 and 2016 to 1% and 1.4%, respectively, from the earlier projections of 0.8% and 1% respectively.

Key Japanese economic indicators:

  • The trade deficit fell 47% from a year earlier to 424.6 bn yen in February compared with a deficit of 1.18 trillion yen in January.
  • Industrial output fell 3.4% (MoM) in February compared with a 3.7% rise in January.
  • Annual CPI inflation slowed to 2% in February from 2.2% in January.

Singapore economy to grow 2.8% in 2015

A quarterly survey conducted by the Monetary Authority of Singapore (MAS) stated that private sector economists have lowered the country’s growth and inflation outlook. The survey showed that the economy is expected to grow 2.8% in 2015, down from the previous forecast of 3.1%. MAS also said that median CPI inflation forecast for 2015 fell to 0.1% in the latest survey, down from the previous forecast of 1.1%. Among key economic indicators –CPI inflation fell 0.3% (YoY) in February, marking the fourth consecutive month of price declines, but slightly up from -0.4% in January. Non-oil domestic exports fell 9.7% (YoY) in February, reversing the 4.3% gain in January.

Domestic Fixed Income Review

Domestic G-sec Yield

6 Month LIBOR

Interbank call money rates hovered around the repo rate of 7.50% for most parts of the month. The rates were on the lower side earlier as inflows from government spending ensured that there was ample liquidity in the banking system. As a result, the RBI held a series of reverse repo auctions to suck away excess liquidity. However, the condition reversed towards the end of the month due to strong demand from banks to meet fund outflows on account of fiscal year-end loan disbursements. Some outflows towards payment of indirect taxes and regular fund demand from banks to meet reserve requirements also put some pressure on the call money rates.

Indian government bond prices (gilts) moved in a narrow range during the month with the yield on the 10-year benchmark paper 8.40% 2024 ending at 7.74% on March 31, 2015, compared with 7.72% on February 27, 2015. Bonds began on a dim note as the budget elicited a largely neutral response from credit rating agencies. Sentiment for bonds was further dented as the Centre revised the fiscal deficit target to 3.9% for 2015-16. Sporadic spike in US Treasury yields and crude oil prices also weighed on the domestic bond market. Gilts were dented further following higher-than-expected domestic consumer inflation figures for February. Profit sales by some participants pulled down the prices further. Gilts were put under further pressure owing to the rupee’s weakness against the US dollar and owing to escalating violence in Yemen. Lack of buying interest towards the end of the financial year also weighed on bond prices.

Further decline in gilts was, however, restricted as a result of the central bank’s unexpected interest rate cut. The RBI surprised the market by slashing the benchmark repo rate by 0.25%, marking the second time the central bank has reduced interest rates outside its policy review cycle since January. Further losses were capped by the release of the government‘s borrowing calendar for the first half of the next fiscal year. According to the borrowing calendar, the Centre will borrow Rs 3.60 lakh cr in the first half of FY16, which would be 66.7% of the full-year target announced in the annual budget last month. Gilt prices strengthened following the outcome of the two-day US FOMC meeting. The US Fed removed a reference to being "patient" on rates from its policy statement, but said that it did not necessarily mean that the central bank would tighten its policy in June. Intermittent decline in global crude oil prices triggered additional bond purchases by market players. A slew of US economic data releases including Housing Starts and Manufacturing Output supported the view that the US Fed may delay hiking interest rates, and aided gilt price gains. Value buying by some market players and the rupee’s recovery against the US dollar pushed up the prices further. Anticipation of a reduction in banks' cash reserve ratio also supported bond prices.

Major regulatory developments in the month

The government plans to take away the RBI’s regulatory powers over government bonds, but leave the central bank in charge of other money market instruments. Finance Secretary Rajiv Mehrishi said that the government will, for the first time, use a 40-year bond to borrow up to Rs 10,000 cr in FY2016. The RBI announced that the indicative quantum of total market borrowings by states and the Union Territory of Puducherry, for the quarter April-June 2015, is expected to be in the range of Rs 45,000-55,000 cr. The central bank will indicate, from April 6, the government’s surplus cash balance to help market participants assess systemic liquidity better. The central bank has extended the time for settling government bond trades to two days, beginning April 6, to address operational issues faced by foreign investors. RBI Deputy Governor R Gandhi said that the development of India’s corporate bond market has "not been too satisfactory", adding that the huge supply of government bonds has been one of the impediments. The RBI exchanged Rs 30,228 cr of securities maturing in 2015-16 fiscal with longer dated securities maturing in 2026-27.

SEBI has relaxed its norms for conversion of debt into equity in companies that are in distress an unable to repay funds. It also approved a new set of norms for listing and trading of municipal bonds on stock exchanges. SEBI notified that a call and put on a public issue of debt securities cannot be exercised before the expiry of 24 months from the date of issue of such securities. SEBI notified a regulation to allow re-issuance of existing debt securities by a corporate issuer within a specified time period rather than launching a new issue.

Among banking related developments, The RBI relaxed norms for non-performing assets (NPA) provisioning according to which banks can now use 50% of their floating provision for specific NPA provision compared to 33% earlier. The central bank came up with guidelines covering institutional framework, restructuring of existing loans, providing fresh loans and other ancillary relief measures to enable banks to take uniform action expeditiously in areas affected by natural calamities. It also eased the norms for home loans up to Rs 10 lakh by allowing banks to include stamp duty and registration charges to the cost of a unit. The RBI directed banks to provide timely and accurate borrower data to credit information bureaus to improve their efficiency. It has advised banks to undertake customer education and awareness programmes in multiple languages through different channels of communication to popularise the process of mobile banking registration/activation and its usage. It allowed banks to reverse the excess provisions made on the sale of bad loans prior to February 26, 2014. The RBI cautioned lenders against outsourcing their credit processing activities to third-party entities. The RBI announced amendments to regulations on capital adequacy and liquidity for lenders operating in the country. It also issued operational guidelines for Indian and foreign banks to set up shop in International Financial Service Centres (IFSCs). The RBI said that para-banking firms, including asset finance companies (AFCs), accepting deposits from the public should get an investment grade rating by March 2016 or shut operations. Further, it said that non-banking financial companies (NBFCs) will need to give 30 days prior public notice before making any acquisition or takeover in addition to taking the central bank’s permission. The RBI relaxed KYC norms for proprietary firms; it said that in cases where banks are satisfied, it is not possible to provide two documents as activity proof, they would have the choice to accept only one of those documents as sufficient. The RBI has asked banks not to sell gold imported on a consignment basis to jewellers on an outright basis.

 

Fixed Income Indicators

Rates & Liquidity

  31-Mar-15 1 Week Ago 1 Month Ago
Repo 7.50 7.50 7.75
Reverse Repo 6.50 6.50 6.75
CRR 4.00 4.00 4.00
LAF o/s Repo (Rscr) 21371 3297 8274
LAF o/s Rev Repo (Rscr) 32007 7894 9100
 

Overnight                                     Rate(%)

  31-Mar-15 1 Week Ago 1 Month Ago
Mibor N.A. N.A. 7.79
Call 9.00 7.40 7.25
CBLO 9.26 7.32 7.32
OIS 1Y 7.69 7.62 7.49
OIS 5Y 7.51 7.57 7.69
     

CDs                                                               Yield(%)

  31-Mar-15 1 Week Ago 1 Month Ago
1-Month 7.93 8.92 8.02
3-Month 7.95 8.72 8.72
6-Month 8.19 8.54 8.72
1-Year 8.20 8.43 8.62
 

CPs                                                Yield(%)

  31-Mar-15 1 Week Ago 1 Month Ago
1-Month 8.31 9.36 8.19
3-Month 8.22 9.06 9.11
6-Month 8.61 9.00 9.18
1-Year 8.64 8.97 9.04
     

Short Term Bonds                                      Yield(%)

  31-Mar-15 1 Week Ago 1 Month Ago
1 Y G-Sec 7.80 7.87 8.00
1 Y AAA 8.38 8.69 8.69
1 Y AA 8.90 9.21 9.21
2 Y G-Sec 7.83 7.81 7.76
2 Y AAA 8.23 8.31 8.21
2 Y AA 8.70 8.78 8.68
 

Long Term Bonds                             Yield(%)

  31-Mar-15 1 Week Ago 1 Month Ago
5 Y G-Sec 7.75 7.79 7.78
5 Y AAA 8.27 8.38 8.25
5 Y AA 8.92 9.03 8.90
10 Y G-Sec 7.74 7.75 7.72
10 Y AAA 8.25 8.32 8.25
10 Y AA 9.07 9.14 9.07
     

Top 5 Graded G-Secs                                  Yield(%)

  31-Mar-15 1 Week Ago 1 Month Ago
08.40% CGL 2024 7.74 7.76 7.72
08.60% CGL 2028 7.75 7.76 7.74
08.27% CGL 2020 7.75 7.78 7.78
08.15% GS 2026 7.73 7.74 7.65
08.27% CGL 2020 7.81 7.83 7.81
 

Currency

  31-Mar-15 1 Week Ago 1 Month Ago
USD/INR 62.49

62.26

61.82
EURO/INR 67.51 68.03 69.29
GBP/INR 92.46 92.93 95.42
100 JPY/INR 52.11 51.99 52.40
USD/EURO 0.93 0.91 0.89
 

 

10 Year G-sec movement

 

Corporate Bond Yield

 

Corporate AAA, AA Bond Spreads

Economic Events Calendar

April 13, 2015
  • Japan’s Producers Price Index, March
  • India’s CPI for Combined, Rural, and Urban, March
April 28, 2015
  • US GDP, Q1 2015
  • US Consumer Confidence Index, April
  • US S&P Case-Shiller HPI, February
  • European Commission Economic Forecasts
  • UK GDP, Q4
  • UK Nationwide House Price Index, April
April 14, 2015
  • US Producer Price Index - Final Demand, March
  • US Retail Sales, March
  • US Business Inventories, February
  • Euro zone Industrial Production, February
  • UK Consumer Price Index, March
  • UK Retail Price Index, March
  • China’s GDP, Q1 2015
  • China’s Industrial Production, March
  • China’s Retail Sales, March
  • India’s WPI Inflation, March
April 29, 2015
  • UK Nationwide House Prices, March
March 13, 2015
  • US Federal Open Market Committee (FOMC) Rate Decision
  • US GDP (Advance), Q1 2015
  • US Personal Consumption (Advance), Q1 2015
  • US Pending Home Sales, March
  • Euro zone Economic Sentiment, April
  • Bank of Japan Monetary Policy Review
  • Japan’s Industrial Production, March
April 15, 2015
  • US Empire Manufacturing (Mfg.), April
  • US Industrial Production/Capacity Utilization, March
  • US Federal Reserve’s Beige Book
  • US NAHB Housing Market Index, April
  • European Central Bank Policy Review
  • Euro zone Trade Balance, February
  • UK Producer Price Index, March
  • Japan’s Industrial Production, February
April 30, 2015
  • US Personal Income & Outlays, March
  • US Chicago Purchasing Manager, April
  • US Employment Cost Index, Q1 2015
  • Euro zone Unemployment Rate, March
  • Euro zone Consumer Price Index, April
  • UK GfK Consumer Confidence, April
  • Japan’s Consumer Price Index, March
  • Japan’s Unemployment Rate, March
  • Japan’s Manufacturing PMI, April
April 16, 2015
  • US Housing Starts and Building Permits, March
  • US Philadelphia Fed Business Outlook Survey, April
May 1, 2015
  • US ISM Manufacturing Index, April
  • US Markit Manufacturing PMI, April
  • US Construction Spending, March
  • US Auto Sales, April
  • US University of Michigan Confidence, April
  • UK Markit Manufacturing PMI, April
  • China’s Manufacturing PMI, April
April 17, 2015
  • US Consumer Price Index, March
  • US University of Michigan Consumer Confidence, April
  • US Leading Indicators Index, March
  • Euro zone Consumer Price Index, March
  • UK ILO Unemployment Rate, February
  • UK Jobless Report, March
May 3, 2015
  • China’s Non-manufacturing PMI, April
April 20, 2015
  • US’ Chicago Fed National Activity Index, March
May 4, 2015
  • US Factory Orders, March
  • Euro zone Markit Manufacturing PMI, May
  • Euro zone Sentix Investor Confidence, May
  • China’s HSBC Manufacturing PMI, April
  • India’s HSBC Manufacturing PMI, April
April 21, 2015
  • Euro zone ZEW Survey Expectations, April
May 5, 2015
  • US ISM Non-Mfg. Composite, April
  • US Markit Composite & Services PMI, April
  • US Trade Balance, March
  • Euro zone Producer Price Index, March
  • UK Markit/CIPS Construction PMI, April
  • UK Halifax House Prices, April
April 22, 2015
  • US Existing Home Sales, March
  • Euro zone Consumer Confidence, April
  • Bank of England Meeting Minutes, April
  • Japan’s Trade Balance, March
May 6, 2015
  • US ADP Employment Change, April
  • US Nonfarm Productivity, Q1 2015
  • Euro zone Markit Services & Composite PMI, April
  • Euro zone Retail Sales, March
  • UK Markit/CIPS Services & Composite PMI, April
  • China’s HSBC Composite & Services PMI, April
  • India’s HSBC Services PMI, April
April 23, 2015
  • US Markit Manufacturing PMI, April
  • US New Home Sales, March
  • Euro zone Markit Manufacturing, Services & Composite PMI, April
  • UK Retail Sales, March
  • China’s HSBC Manufacturing PMI, April
  • Japan’s All Industry Index, February
May 7, 2015
  • Euro zone Markit Retail PMI, April
April 24, 2015
  • US Durable Goods Orders, March
May 8, 2015
  • US Employment Report, April
  • US Consumer Credit, March
  • US Trade Balance, April
  • US Wholesale Inventories, March
  • UK Visible Trade Balance, March
April 27, 2015
  • US Markit Composite PMI, April
  • US Dallas Fed Mfg. Activity, April
April 10, 2015  

US Fixed Income Markets - Overview

The US Treasury prices ended higher in the month on the back of the US Fed’s dovish stance on the interest rate hike and sporadic weak US economic data. The yield on the 10-year benchmark bond fell to 1.93% on March 31 from 2.00% on February 27. The US Treasuries started the month on a weak note on a flurry of corporate bond sales and on some positive US economic indicators. However, losses were recovered quickly as prices rose sharply after the US Fed removed a reference to being "patient" on rates from its policy statement. The Fed, however, said that it does not necessarily mean that it will tighten the policy in June. Some weak economic data (Q4 GDP growth, retail sales and industrial production) also led to rise in bond prices. Other global developments such as the ECB initiating a 1.1 trillion euro bond-buying program, ongoing Greece debt crisis and geopolitical tension in Yemen also boosted demand for safe-haven US bonds.

US 10 Year Govt. Bond Yield

Learning Centre– Securitisation

Securitisation is the process of converting specific assets into securities which can be purchased by investors to avail cash flows in the form of interest and principal. The term is often used in the context of securities that are backed by mortgages, auto loans or credit card debt obligations.

In the case of mortgages, the asset refers to loans taken by borrowers to purchase homes. Banks pool these mortgages together and convert them into securities that are offered to investors. A buyer of the security (investor) holds a claim over the principal and interest payments made by the home loan borrowers. As the security is ‘backed’ by a home loan, it is called mortgage backed security.

What is the advantage for the bank?

When mortgages are converted into securities and offered to investors, the investors offer cash to purchase these securities. This effectively converts a relatively illiquid asset on the bank’s balance sheet (mortgages) into a more liquid asset (cash). The cash can be used by banks to offer more home loans to other borrowers. Thus, securitisation ensures that banks have a steady supply of cash that can be used to offer more credit. In addition, securitisation also enables the bank to transfer credit risk to the investor.

What is the advantage for the investor?

Investors receive cash flows in the form of principal and interest payments made by the home loan borrowers in return for purchasing the security.

What are the risks?

The incentive of converting all mortgages into cash may induce banks to offer home loans to high risk borrowers. There is a high probability that such borrowers will not make their principal and interest payments on time and/or in full. When this happens, investors who hold a claim on these cash flows will suffer losses.

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