- Jul’24 Manufacturing PMI edged down to 58.1 vs 58.3 in June. The numbers came below initial estimate of 58.5 and the market forecast of 59.
- GST collections for July grew by 10.3% y/y and stood at Rs 1.82 trillion.
- RBI issued a draft circular on Liquidity Coverage Ratio, which envisages in increase in LCR and hence could be positive for bond market.
- Also, RBI notified to exclude all new GSECs of 14-year & 30-year tenors from the Fully Accessible Route (FAR) suite of bonds. This may have impact on the index inclusion related flows in these maturity GSECs.
- Bank of England cut rates by 25bps to 5%, post moderation in inflation print.
- Bank of Japan raised the interest rate to 25bps
- Fed kept the policy rate unchanged while indicated that there could be a rate cut in September however it will be data driven and must be validated by certain data points s/a inflation, growth, employment etc.
- US non-farm payrolls climbed by 114,000 in Ju (compared to 175,000 jobs consensus) after jumping by a downwardly revised 179,000 in June. The unemployment rate climbed to 4.3% from 4.1% in June. In addition, hourly wage earnings also missed expectations and rose by 0.2% to $35.07 after rising 0.3% in June. Numbers led to sharp rally in US treasury yields, with the 10Y yield down by 44-45bps to below 3.8.
- The soft labor data expected to have some impact on the decisions by the Fed on rate front in its forthcoming meeting in September.
- G-Sec auction results: Cut-offs were better in 2-years auction, however, were marginally higher than market expectations for 30-year GSEC due to RBI circular on FAR GSecs. RBI offered 7.02 GS 2027 at 6.81% for INR 60bn, and New GS 2054 at 7.09% for INR 100bn. RBI issued a 10-year green bond (New GOI SGrB 2034), however it accepted lower than the issuance amount to keep the rate of green bond lower than the 10Y benchmark bond and it set the cut-off rate at 6.90% for INR 16.97bn.
- T-Bill auction results: Cut-offs came better by 3.5-4 bps vs previous week due to better system liquidity. RBI offered 91 days T-bills at 6.67% for INR 80bn, 182- days T-bills at 6.79% for INR 60bn, and 364 days T-bills at 6.80% for INR 60bn.
- SDL auction results: While the auction amount was higher at INR 29,500 cr, however cut-offs were lower than the market expectations. RBI offered 10Y SDLs around 7.27-7.29%, while the long end (11-25 Year) was sold between 7.29-7.34% range.
- System Liquidity: The liquidity has improved largely on account of increased government spending and FX intervention. On Friday, the Overnight rates even touched intraday low at 6%. However, RBI continued to conduct VRRR auctions and in the last three-weeks it has undertaken OMO sales in the secondary market aggregating to ~Rs.10,000 cr.
- Update on GSEC yields: Short end outperformed the longer end of GSECs, with 3-13 years segment yields were lower by 2 bps in last week and 30-40 years segment yields moved up by ~2bps. 10Y benchmark GSEC (7.10% GS 2034) fell by 5 bps to close at 6.89% from the previous week’s close of 6.94%.
- Going forward, liquidity conditions expected to be in surplus mode on account of continued govt spending, lower currency leakage and Forex intervention. This should be positive for the shorter end of the curve and supports the house view of curve steepening.
- We look forward to the inflation trajectory and MPC meeting on 8th Aug which will give guidance on the interest rate movements in near to medium term.
Update on Fixed Income Market (29 July – 2 Aug)
