Bond valuations appear attractive: Jajoo
Bond valuations appear attractive: Jajoo
The fixed income markets began last week carrying forward the positive momentum of the recent weeks with benchmark 10-year government bond yield dropping to an intra-week low of 8.48%, a near three-month low. However, in a dramatic turnaround, reversed the momentum with benchmark yield closing at 8.74%, a net uptick of 11 bps points for the week and a spike of 26 bps from the intra-week low. Mid-week, the much awaited Urjit Patel committee report on a new framework for monetary policy was released that advocated an inflation targeting approach with recommendation to set consumer price inflation as the nominal anchor.
The report suggested the target for CPI inflation at 4% with a range of 2% variation. With current CPI at 10% and an intermediate target of 8% by end 2014, it brought back inflationary concerns to the foreground yet again reigniting doubts about possibility of further rate hikes. Around the same time, emerging market currencies had a sort of relapse with Argentina devaluing its currency by 15%. Equity markets led by the US, corrected sharply and so also did most emerging currencies. In line with the global trend, the rupee also depreciated by 1.84% to 62.68 vs 61.55 last week against the dollar even though traders said month-end demand from oil companies was also a major factor. AAA corporate bond yields also inched up by about 10 bps for the week, in line with correction in government bond markets, though there was a perceptible decline in volumes.
The liquidity situation remained largely stable with liquidity adjustment facility outstanding balance declining marginally from Rs 40,000 crore to Rs 35,300 crore and marginal standing facility balances declined from Rs 7,200 crore to Rs 3,500 crore. RBI has been preemptive in conducting term repos for injecting additional liquidity as the current tightness is largely attributed to a slowdown in government spending. Money markets rates remained largely unchanged for the week though issuances of CD from banks picked up pace.
With the fresh round of volatility in global markets led by currency devaluation by Argentina, the environment has turned uncertain with renewed talk of a pull-out by foreign investors from emerging markets. Given the guidance in the December policy and the subsequent decline in headline inflation, both CPI and WPI, the expectation would be strong for a continued pause in monetary policy to be released on January 28. After the strong spike last week in local markets and with US 10-year yields easing back strongly by 25 bps to 2.75% last week, valuations appear attractive. However, future guidance, particularly with reference to Urjit Patel committee report would be important to interest rate trajectory.
Mahendra Jajoo is Executive Director & CIO-Fixed Income at Pramerica Asset Manager
» Business Standard
Thanking you
Regards,
Rajesh Kumar Kathpalia ¤ SMC Global
17,Netaji Subhash Marg,Daryaganj,
New Delhi-110002 Mobile No 9891645052
Email Id: rajesh.ipo@smcindiaonline.com
--
You received this message because you are subscribed to the Google Groups "Product Updates for AMC" group.
To unsubscribe from this group and stop receiving emails from it, send an email to Productupdatesforamc+unsubscribe@googlegroups.com.
For more options, visit https://groups.google.com/groups/opt_out.
The fixed income markets began last week carrying forward the positive momentum of the recent weeks with benchmark 10-year government bond yield dropping to an intra-week low of 8.48%, a near three-month low. However, in a dramatic turnaround, reversed the momentum with benchmark yield closing at 8.74%, a net uptick of 11 bps points for the week and a spike of 26 bps from the intra-week low. Mid-week, the much awaited Urjit Patel committee report on a new framework for monetary policy was released that advocated an inflation targeting approach with recommendation to set consumer price inflation as the nominal anchor.
The report suggested the target for CPI inflation at 4% with a range of 2% variation. With current CPI at 10% and an intermediate target of 8% by end 2014, it brought back inflationary concerns to the foreground yet again reigniting doubts about possibility of further rate hikes. Around the same time, emerging market currencies had a sort of relapse with Argentina devaluing its currency by 15%. Equity markets led by the US, corrected sharply and so also did most emerging currencies. In line with the global trend, the rupee also depreciated by 1.84% to 62.68 vs 61.55 last week against the dollar even though traders said month-end demand from oil companies was also a major factor. AAA corporate bond yields also inched up by about 10 bps for the week, in line with correction in government bond markets, though there was a perceptible decline in volumes.
The liquidity situation remained largely stable with liquidity adjustment facility outstanding balance declining marginally from Rs 40,000 crore to Rs 35,300 crore and marginal standing facility balances declined from Rs 7,200 crore to Rs 3,500 crore. RBI has been preemptive in conducting term repos for injecting additional liquidity as the current tightness is largely attributed to a slowdown in government spending. Money markets rates remained largely unchanged for the week though issuances of CD from banks picked up pace.
With the fresh round of volatility in global markets led by currency devaluation by Argentina, the environment has turned uncertain with renewed talk of a pull-out by foreign investors from emerging markets. Given the guidance in the December policy and the subsequent decline in headline inflation, both CPI and WPI, the expectation would be strong for a continued pause in monetary policy to be released on January 28. After the strong spike last week in local markets and with US 10-year yields easing back strongly by 25 bps to 2.75% last week, valuations appear attractive. However, future guidance, particularly with reference to Urjit Patel committee report would be important to interest rate trajectory.
Mahendra Jajoo is Executive Director & CIO-Fixed Income at Pramerica Asset Manager
» Business Standard
Thanking you
Regards,
Rajesh Kumar Kathpalia ¤ SMC Global
17,Netaji Subhash Marg,Daryaganj,
New Delhi-110002 Mobile No 9891645052
Email Id: rajesh.ipo@smcindiaonline.com
--
You received this message because you are subscribed to the Google Groups "Product Updates for AMC" group.
To unsubscribe from this group and stop receiving emails from it, send an email to Productupdatesforamc+unsubscribe@googlegroups.com.
For more options, visit https://groups.google.com/groups/opt_out.
Comments
Post a Comment
You are requested to mentioned your full name with email id while commenting.