Corporate Bond Market Update – November 2014

Global Markets

US Non-Farm Payroll (NFP) released in Nov’14 increased modestly by 214K. The nonfarm work week edged higher, and the unemployment rate fell to a new cyclical low. A key focus for the markets came from an unexpected upward revision to 3rd quarter US GDP growth to an annualized pace of 3.9%. Other big three – Japan, euro zone and China – have all displayed significant weakness relative to the perceived long-term trend.

Euro-zone Government bond yields hit record lows on back of investors’ expectations of European Central Bank (ECB) embarking on buying of large quantities of sovereign debt under asset purchase program.

MSCI Emerging Markets Index closed almost flat on a month-on-month basis despite high-volatility during Nov’14. The People’s Bank of China (PBoC) surprised the market with unexpected cuts in 1-year deposit to 2.75% (-25 bps) and 1-year lending rate to 5.6% (-40 bps). Bank of Indonesia surprisingly hiked its policy rate to 7.75%. Crude oil prices fell to fresh 4-year lows.

India Macro Developments

  • Fuel Prices:  Even though the GOI deregulated diesel prices, the full pass-through has not yet happened for consumers. As a consequence of the deregulation, diesel prices were cut 3 times for total of Rs.6.21/liter between September 2014 and end-November, but the government increased the excise duties by Rs.2.25/ litre, partially reversing the cuts.
  • Inflation: The CPI inflation reading for the Oct ’14 was much lower at 5.52% y/y as compared to Bloomberg estimate of 5.7%. Most notably core inflation was at 5.86%, lowest since the CPI combined inflation data has been released. WPI reinforced the falling retail inflation trend and printed at 1.8% y/y for Oct ’14 against 2.83% for Sept ‘14.
  • Trade Deficit: Trade deficit narrowed marginally in Oct’14 to USD 13.3b as compared to USD 14.25b in Sept’14. The narrowing happened partly on account of markedly lower oil imports, and helped substantially by lower crude oil prices, resulting in lower overall imports of 3.6% y/y. Exports in general have seen a slump indicating global headwinds of slower growth, and exports have declined by 5% y/y.
  • Borrowing & Liquidity: System liquidity remained comfortable during the month and the RBI saw a lot of bidding on the reverse repo side during the beginning of the month, e.g. reverse repo amounts Rs.222.86b exceeded repo borrowing amounts Rs. 203.41b.
  • Data on Core Industries: The index of eight core industries data released by the Office of Economic Adviser printed at 6.3% for Oct ‘14.

Highlights of bi-monthly Monetary Policy, dated 2nd Dec 2014:

  • Key policy rates remain unchanged;
  • A change in the monetary policy stance at the current juncture is premature, however, change in the monetary policy stance is likely early next year, including outside the policy review cycle.

The report further highlights recent corporate bond trading levels, primary bond issuances and summary of regulatory changes.

India Corporate Bond Report_Dec2014 (2)

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