October 2015 $ $ $ DEBT Market Review edit mortgage ey es poverty s wealth bond investment bankruptcy Shares loss bond econom povert News/Announcements Money Market T-bills Market G-Secs Market Corporate Debt Market Currency Rates recession br bankruptc
News/Announcements Domestic news RBI lowered key repo rate by 50bps in its fourth bi-monthly monetary policy announcement on 29th September'15. The repo rate now stands at 6.75% and the reverse repo rate at 5.75%. The RBI has cut interest rates by a total of 125 bps since January'15 with the aim to provide a boost to the s amid an environment of sustained inflation level. Retail inflation for September'15 came in at 4.41%, an increase from last month's low of 3.7%. Food inflation also wited significant rise to 3.88% from 2.2% in August'15, led by a 30% rise in prices of pulses. Index of Industrial production (IIP) touched a three year high as it was recorded at 6.7% for the month of August'15. A significant pick-up was seen in consumer goods production given the festive season outlook. Capital goods also showed a high growth of 21.8% on the back of increased government spending. However, the high IIP number comes after a very favorable base effect for consumer and capital goods. Core industry index rose 2.6% in August'15 compared with 1.1% growth in the previous month. Seven out of eight industries (steel, cement, natural gas, fertilizer, coal, crude oil, refinery products, and electricity) showed positive growth with natural gas production turning positive after declining for several years. Reserve Bank of India, has increased the limits for FPI investments in central government securities to 5% of outstandingstock by March'18, providing room for an additional investment worth Rs. 1200bn in G-sec. It has also, set separate limits for FPI investment in State Development Loans, to be increased to 2% of outstanding stock by March'18. The central bank also mentioned that the investments would be measured in rupees replacing dollar as the used. Global news The U.S. services sector remained buoyant in August'15 as Purchasing Managers Index (PMI) rose to 56.1, compared with 55.7 in the previous month. However, durable goods orders in the U.S. fell 2%in August'15 (m/m), after demand for durable goods was hurt by the strong U.S. dollar and weak global economic growth. China's foreign exchange reserves declined$93.9 billion in August'15the biggest monthly drop on record, to $3.6trillion, underlining the pressure endured by the country's central bank as it tried to prop up the Yuan and stabilize financial s. Chinese exports fell 5.5%(y/y) in August'15 after dropping 8.3% in July'15. Meanwhile, imports slid 13.8% after easing 8.1%in July'15. China's industrial production climbed to 6.1% (y/y) in August'15. Growth in the G20 averaged 0.7% in the second quarter (q/q), slightly lower than the 0.8%registered in the first quarter, according to the Organization for Economic Co-operation and Development. China grew fastest among the G20 in the second quarter. bond investment bankruptcy Eurozone growth for the first half of 2015 was revised upwards from 1.4% to1.5%. Growth was led by a sharp increase in exports, offsetting the decline in investment. Inflation decelerated unexpectedly to 0.1% in August'15 (y/y). Unemployment in the Euro Area was unchanged at 11% compared with the previous month, but slightly lower than the 11.5 % recorded in August'14 Eurozone services purchasing manager's index was revised down for September to 53.7 from 54 (Markit)in August bringing down the composite index to 53.6 in September, compared with 54.3 in August'15 Australia's GDP wasat 2.0% (y/y) in Q2 2015, lower than expectations of 2.2% growth. This is attributed to reduced mining and construction activity, coupled with a decline in exports. Inflation in Russia was marginallylower at 15.7% in September'15 (y/y), compared with 15.8 % in August'15. The cost of food, housing and transportation is increasing at a slower pace. Core inflation was unchanged at 16.6%. Unemployment in the U.K. fell to 5.5% in the three months to July'15, down from the 6.2% registered a year earlier. Industrial production picked up in August'15, expanding by 1% over July'15, led by gas extraction and transportation equipment (especially cars). Brazil's central bank maintained its key Selic rate unchanged at 14.25% at a nine-year high reiterating that maintaining interest rate at this level for a sufficiently long period is necessary for the convergence of inflation by December'16. In the Sovereign Ratings Domain Standard & Poor's(S&P) raises South Korea's sovereign rating to 'AA-' from 'A+'. The upgrade in rating comes on the back of strong economic growth, decline in short term component of external borrowings and reduced foreign ined of banks. S&P downgraded Japan's sovereign credit rating by one notch due to government's weak efforts to revive economic growth. The rating was lowered to 'A+' from 'AA-' so that the government takes more credible fiscal reforms to meet its high obligations. Moody's' downgraded France's government bond ratings to Aa2 from Aa1 while the outlook changed to stable from negative. The downgrade was done due to a continued weak in the medium-term growth outlook for the country. Although the country's credit worthi supports the high rating of 'Aa2', yet low growth amid political and institutional constraints might lead to increased burden for the government. Standard and Poor'supgraded the sovereign rating for Spain from 'BBB' to 'BBB+' with a 'stable' outlook. The rating decision comes in view of the labor reforms taken by the government and balanced economic performance which has reflected positively in public finances. The 'stable' outlook 1
reflects budgetary consolidation and balanced risk from external. rating firm Fitch Ratings has affirmed the Philippines' sovereign rating of 'BBB-'and revised its outlook to 'positive' from 'stable', citing improvement in governance and competitive, sustained economic growth, and falling public. The sovereign ratings given by ARC Ratings as of date are given in table 1 below. Table 1: Sovereign Ratings by ARC Ratings Table 2: Movement of interest rates, FIMMDA Corporates issued a total of Rs. 5.83 lkh Cr. of commercial paper during the period of 1st April '15 15thSeptember '15 which is 16% higher than the amount issued during the corresponding period of the previous fiscal. Exhibit 2: CP issuance during 1st Apr '15-15thSep'15 CP issuance (Rs. crore) 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 68,480 67,890 68,390 71,260 10.00 59,340 61,67067,880 63,840 54,050 8.59 8.85 8.98 9.00 8.76 8.45 8.76 8.83 8.65 8.45 8.40 8.55 % 8.417.68 7.71 8.10 8.13 8.00 7.62 7.55 7.00 Source: ARC Ratings; *CARE Ratings is one of the four partners Money Markets Liquidity in the domestic improved in September'15 as the Reserve Bank of India conducted 28 term repo and reverse repo auctions under the LAF totalling Rs.2,75,885 crs. 11 Repo auctions were held for a total notofied amount of Rs.1,85,000. 17 reverse repo auctions were held for a notifed amount of Rs.2,85,000. Exhibit 1 given below depicts the dynamics of the domestic during the month of August '15. Exhibit 1: Repo Borrowings and MIBOR Repo Borrowings (Rs.crore) 24,000 20,000 16,000 12,000 8,000 4,000 0 6.75 September 1, 2015 September 30, 2015 Repo Borrowings MIBOR 7.45 7.35 7.25 7.15 7.05 % 6.95 6.85 CP vol 180-days rate 365-days rate CP rates movements for 180-days paper and 360-days paper differed in the last month of September'15. While yields on 180-days paper were higher, yields on 360-days paper moderated. Yields on 180-days CP were higher by a margin of 3 bps as rates ended at 8.13% (last month it was 8.10%). On the other hand, yields for 360-days paper was lower by 5bps closing at 8.40 % compared to last month's close of 8.45%. Overall, both 180-days and 364-days yields did not show much fluctuation in September'15. T-Bills Market In accordance with the calendar for T-bills auction, a total of Rs. 70,000 Cr. was raised through T-bills in September'15.Table 3 below records the details of Treasury bills auctions for various tenures held during the month of September'2015. Table 3: Treasury bills auctions held during Sept 2015 MIBOR rate was volatile in the month of September'15 as it recorded a fluctuation of 37 bps around the average of 7.25%.The first week saw the rate below the average, with significant upward movement in the middle of the month when the rate reached its highest level of 7.41%. It moderated thereafter, reaching a level of 7.33% in the last week of the month. However, MIBOR closed significantly lower at 7.04% on September 30th, the minimum level for the month. The call rate was between 6.78%-7.62% last month. The call rate in September'15 was 10bps higher than August'15 average of 7.13%. The call rate reached its highest level of 7.62% in the last week of the month, before closing at 6.86% on 30th Sept 15. bond investment bankruptcy The total amount auctioned during September'15 through T- bill was higher than previous month's auction of Rs.56, 000. The average yield for 91-days T-bills was lower by 3bps compared to last month (7.39%). The average yield for 180-days T-bills was lower for Sept'15 visà-vis August'15 by 2bps (August'15 was 7.5%). Average yield for 364-days T-bills fell by 6bps to 7.50% in September'15 compared to the 7.56% in August'15. 2
G-Secs Market A) Primary G-Sec Market (Domestic) G-sec auctions aggregating Rs. 42,000 Cr. were held during the month of September '15, significantly lower than Rs. 56,000 Cr. auctioned during the month of August'15. Yields for these G-sec auctions were in the range of 7.78% to 8.03%. The average yield fell marginally by 2 bps to 7.93% from the previous month's average of 7.95%. Exhibit 4 captures the movement in the 10-yr G-Sec yield in September '15. Exhibit 3: 10-yr G-Sec yield in Sep '15 % 7.90 7.85 7.80 7.75 7.70 7.65 7.60 7.55 7.50 1-Sep 3-Sep 5-Sep 7-Sep 9-Sep 11-Sep 13-Sep 15-Sep 17-Sep 19-Sep 21-Sep 23-Sep 25-Sep 27-Sep 29-Sep Benchmark yields across allthe various tenure papers settled lower in September '15 relative to the closing levels in August '15. All papers wited significant fall in yields with very long term 30-yr paper witing the least decline of 16bps. For all the other tenure paper, the fall was more than 22bps. The largest fall was seen in paper with 0.25yr maturity (33bps). The average yield fell by as much as 27bps in September reported at 7.51%, compared to last month's level of 7.78%. Sovereign Bond Yields in the Global Context Table 5: Yields on different tenure bonds (%) Sept 15 Table 4 below provides the State development loans auctions for September'15. Twenty-three auctions of SDL (10 yr securities) was conducted during September'15 amounting to Rs.20,810cr, with Rs.21,110 cr being accepted. Table 4: State Development Loans (10-year) for Sept 15 Source: Economist, October 2nd, 2015 $- 5-year yield Interest rates movements were volatile in September'15 for global economies. While short term rates remained stable for USA, it declined significantly for India (37bps). Some moderation in short-term rates was seen for the economies of Japan, Euro zone and Greece (each showing a 1 bps decline). Brazil, Russia and China were among the economies that showed a rise in short term rates by 50bps, 10bps and 5bps respectively. There was a downward movement in the long term interest for all economies except Brazil and the Euro zone. The maximum fall was seen for Greece (87bps), followed by Russia (50bps), India (21bps), USA (11bps), China (5bps) and Japan (2bps). India's wited significant decline in both short-term and long-term interest rates to close at 7.05% and 7.54% respectively. B) Secondary G-Secs Market (Domestic) Exhibit 5 captures the yield curves as of the end- of-month for the last three months of July'15, August'15 and September'15 Exhibit 4: Benchmark Yield Curve Bank Table 6 gives information on growth in bank credit during the first 5 months of the year across major sectors. As can be seen, growth in credit to manufacturing as well as services has registered negative numbers on top of negative growth rates last year. Agriculture and personal loans segments have registered positive growth rates, with the latter being higher than that in 2014. % 8.20 8.00 7.80 7.60 7.40 7.20 7.00 6.80 6.60 6.40 1 2 3 4 5 6 7 8 9 10 11 12 31-Jul-15 31-Aug-15 30-Sep-15 bond investment bankruptcy 3
Corporate Debt Market Table 6: Sectoral distribution of credit Corporate Bonds 56 Corporates issued a total of Rs. 2,40,864cr. during the month of September '15 through various instruments such as bonds and non-convertible debentures. Table 3 highlights select issuances during the month gone by. Table 8: Select Debt Issues during September '15 Table 7: Growth in credit to Manufacturing: Industry-wise The rating changes for the month of September '15 are given in Table 4 below. Table 9: Rating changes during August'15 Exhibit 5: AAA Spreads 100 80 60 bps The table shows that within manufacturing, infrastructure, metals and wood products were the only segments that wited positive growth during the first 5 months with power and roads being the bright spots in the former.the financial services segment continued to lead in the with a share of above 72%. 20 0 1 2 31-Jul-15 3 4 5 6 31-Aug-15 7 8 9 10 Maturity (yrs) 30-Sep-15 bond investment bankruptcy 4 b 40
Corporate bond spreads across all maturities were significantly higher for the month of September'15 relative to last two months of August and July. The maximum increase in yield was seen in the 2yr and 3yr maturity papers (37bps) followed by 8-yr, 4-yr and 5-yr maturity papers with spreads being 35bps, 32bps and 31bps higher than August'15 respectively. 9yr and 10-yr maturity papers showed the least rise in yields (20bps and 23bps respectively), with the remaining papers (1yr, 6-yr and 7-yr) maturity papers rising by around 26bps relative to last month. FIIs and Mutual Funds in Debt Markets Net FII flows showed some pick up last month while Mutual fund investments fell further last month. The Net FII flows were in negative as they fell to USD (-874) mn. While equity flows were in the negative zone with amount being USD 978 mn, flows were positive amounting to USD 105 mn. Mutual fund investments in securities were seen to weaken in the month gone by. The same fell to Rs. 16,634 cr in August'15 from last month's investment level of Rs. 24,189 Cr. The exhibit 7 below displays the trends in FII inflows and Mutual Fund investments in domestic securities during the last 9 months. The exhibit 8 below captures the movement in the exchange rates over the last few months from 1st Apr '15 to 30thSeptember'15. Exhibit 7: Rupee movement Rs/$ 67 66 65 64 63 62 61 60 59 58 Table 10: Currency Rates Rs/$ Rs/Euro Linear (Rs/$) 85 83 81 79 77 75 73 71 69 67 September 30, 2015 65 Rs/Euro Exhibit 6: FIIs and Mutual Fund Investments in Domestic Debt Securities Rs. Cr. 90,000 20,000 77,300 80,000 63,578 70,000 15,000 54,655 60,000 10,000 50,000 40,000 33,124 29,494 2,113 22,627 5,000 30,000 24,189 17,389 272 16,634 20,000 3,349 1,389 0 570 10,000 2-1,331-96 2 - -5,000 US $ mn Source: NSDL, SEBI Mutual funds in Debt Securities FII inflows in Debt Securities Currency Rates The INR remained weak against the dollar. It depreciated to the lowest level of Rs.66.83 in the first week of the month. The rupee remained volatile due to fluctuating inflow and outflow of foreign capital from the. It was strongest by month end as it closed at Rs. 65.59 on 30thSeptember'15 after RBI's policy announcement lowered repo rate by 50bps and announced an increase in the FPI limits.the monthly average stood at Rs. 66.20 for September'15, as low as 1.72% from previous month's average of Rs.65.08. The Rupee-Euro exchange rate was no better than the Rupee- USD exchange rate in August'15. The rupee reached its monthlow of Rs.75.13 as currencies of emerging economies weakened against the Euro. The exchange rate recovered thereafter, closing at Rs. 73.50 on 30thSeptember'15, 100 paise higher than its August'15 close of Rs. 74.50. The monthly average was 2.48% lower at Rs. 74.33 in comparison to the average of Rs. 72.53 in August'15. bond investment bankruptcy 4
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