Tata Mutual Fund

Market Commentary

  • Request a callback
    Please fill the details below & we will get in touch with you
    Fields with * marks are mandatory
    Name *

    Mobile No *

    Landline No -

    City *

    Thank You!

    We will get back to you soon.

Debt Market

Debt Commentary – January 2019

31-Jan-19 31-Dec-18
Change (bps)
10 Year Benchmark Yield (s.a) 7.48% 7.37% 11
10 Year AAA (PSU) (ann) 8.72% 8.42% 30
5 Year AAA (PSU) (ann) 8.59% 8.42% 17
3 Year AAA (PSU) (ann)
8.52% 8.32% 20
1 Year AAA (PSU) (ann)
8.34% 8.22% 12
3 Month T Bill 6.50% 6.75% -25
3 Month CD 7.10%
7.05% 5
6 Month CD 7.63% 7.93% -30
9 Month CD 7.65% 7.95% -30
12 Month CD 7.93% 8.08% -15
10 Year AAA Spread 1.10% 0.91% 19
5 Year AAA Spread 0.97% 0.91% 6


Sovereign bond yields hardened during the month on the back of increase in crude oil prices, lower OMO than expected and rising concerns of fiscal slippage. US bond yields eased to 2.63 from 2.68 at the beginning of the period. India 10-year G-Sec yields hardened throughout the month and closed the month at 7.48 compared to 7.37 at the beginning of the month. New 10-year G-Sec was issued during the month of January at 7.26 coupon and closed the month in discount at 7.28 yield. Corporate bonds also followed suite with both 10-year and 5-year corporate bond yields ending the period at 8.72 and 8.59 up by 30 bps and 17 bps respectively over previous month close. Money market instruments at the shorter end of the curve also continued to ease on the back of improved liquidity conditions due to OMO. 3-month Treasury bill eased by 25 bps to close at 6.50 while 3-month CD yields hardened by 5 bps on the back of increased supply in this segment. However, CDs with residual maturity of 6 month to 1 year rallied due to increased expectations of rate cut. FPI activity saw net outflows of 5,703 crores for the month of January compared to an inflow of 7,213 crores in the month of December 2018. Cumulatively, FPI outflows from debt market for FYTD stood at Rs. 52,261 crs. Indian Rupee depreciated to 71.09 compared to 69.77 at the beginning of the period and 65.12 at the beginning of financial year. Crude oil prices increased on the back of supply cut by OPEC and improving demand outlook closing the month at 62 compared to 53.72 at the beginning of the period. 

On the macroeconomic data released during the period, CPI inflation moderated to an 18-month low of 2.2% YoY in December from 2.3% in November, in line with market expectations. Fall in inflation was primarily driven by deepening food deflation and lower oil prices. Food price inflation continued its decline, contracting by 2.5% y-o-y compared to -2.6% in November. Industrial production (IP) growth moderated to a 17-month low of 0.5% YoY in November from an upwardly revised 8.4% in October. The moderation was expected because of the change in working days caused by the Diwali festival, which fell in November in 2018 versus October in 2017. Average Oct-Nov growth in industrial production was 4.4% YoY, a slight slowdown from an average of 4.6% in Aug-Sep.

The government presented interim budget for FY20, announcing populist relief measures for farmers & middle class, and taking a pause in fiscal consolidation. Fiscal deficit for FY2019 saw a marginal slippage of 0.1% of GDP to 3.4% (versus target of 3.3%). Fiscal deficit for FY2020 has been projected to remain flat at 3.4% of GDP in FY2020 (versus target of 3.1%). Fixed income market did not take the budget positively due to higher than-expected gross market borrowing (INR 7.1trillion) and additional market borrowings in FY2019 (about INR 325 billion including INR 80 billion of T-bills) that are likely to take place in the remaining two months of this fiscal year.

RBI’s Monetary Policy Committee reduced the policy repo rate by 25 basis points from 6.5% to 6.25% as against expectations of no change, while simultaneously changing its stance to ‘neutral’ from ‘calibrated tightening’. Inflation forecast was revised to 2.8% for Q4FY19 and 3.2-3.4% in H1FY20 (3.8-4.2% earlier) and 3.9% in Q3FY20, with risks broadly balanced around the central trajectory (earlier risks were tilted on the upside). Growth projection was lowered to 7.4% for FY20, 7.2-7.4% in H1FY20 (7.5% earlier) and 7.5% in Q3FY20. Unexpected rate cut and dovish guidance by the MPC committee led to a rally in fixed income market with 10 year new benchmark rallying by 7 bps and 10 year corporate bonds rallying by 10 bps.

Systemic liquidity during the month of January was negative but gradually eased to close at negative 7,900 crores after hitting a high deficit of negative 1,12,100 crores on the back of GST outflows versus negative 77,900 crores at the beginning of the month. To ease liquidity conditions, RBI conducted OMO purchase of 50k crore in the month of January 2019. In addition, RBI announced additional OMO purchase of 37.5k crore in the month of February based on its assessment of the durable liquidity needs going forward. RBI has conducted/announced OMOs to the tune of Rs. 2,36,000 crores and has further announced 37,500 crores of OMO taking the cumulative OMO number for FY19 to Rs. 2,73,500 crores.

Going forward, we expect RBI to cut repo rate by further 25 bps in the next monetary policy meeting in April and continue to actively manage liquidity in the banking system. Lower headline inflation, synchronized slowdown in global growth and moderation in commodity prices should open up space for monetary easing in H1-FY20. We expect new 10-year Gsec benchmark to trade between 7.15%-7.45% range and 10-year Corporate bonds to trade in a range of 8.25%-8.55%. We expect the short-term rates to remain dependent on RBI actions for liquidity management.

Designed & Developed by Idealake

Email a friendX

Fields with* marks are mandatory

Name* Email*

Name Email

Name Email

Name Email

Name Email

Sender Name*

Sender Email*