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Indian Markets:

Indian Bonds remained under pressure during the week as INR came under renewed pressure on the back of US dollar strength with  DXY topping 108. The strength in the Dollar Index led to weakness across emerging market currencies. INR weakness and the unabated  rise in global bond yields put pressure on the Indian yield curve which steepened a bit with the longer end of the curve underperforming.  The benchmark 10yr bond yield ended the week broadly unchanged from last week’s closing at 6.79% though the longer-end bond yield edged higher by 1bps. The entire focus is currently on the currency as INR touched a life time low of 85.82 on an intraday basis against  the US dollar, before suspected RBI intervention led to some marginal gains and INR ended the week at 85.54, compared to last week’s  closing of 85.02. INR has depreciated at a faster clip this month, with RBI holding off from aggressive intervention. INR has depreciated by around 2.8%  CYTD which is less than most emerging market currencies. INR relative outperformance is backed by better macroeconomic variables  and also on account of continued RBI intervention, which has impacted domestic banking liquidity over the last couple of months. The  Current Account Deficit came in steady at 1.20%, of GDP for QE Sep 24 compared to 1.10% of GDP in the quarter ending June 24.  Capital account remained in surplus at USD 30bn and the overall BOP surplus came in at USD 18.60bn in QE Sep from USD 5.20bn  in the previous quarter, though the current account deficit is likely to expand in the Dec quarter.  

Banking sector liquidity has remained tight resulting in a sharp uptick in money market yields of up to 1yr maturity. 3-month maturity  CD yields have risen by 20-25 bps over the last fortnight whereas the 1yr maturity CD’s are trading higher by 10-15 bps, even as FPI  flows both in equity and debt revived this month. The Finance Ministry in its economic review, for Novembe,r expressed optimism regarding a growth rebound in H2 of FY25 by projecting a GDP growth of 6.50% for FY25 and also mentioning that the “combination of monetary policy stance and macroprudential measures by the central bank may have contributed to the demand slowdown”. Even as optimism grows for a rebound in H2, the monthly fresh formal hiring saw a sharp decline in October with the number of new monthly subscribers under the EPF decreasing by 20.80% MOM, according to the latest payroll data released by EPFO. The EPFO data is considered crucial as it reflects the state of the formal labour market. MOSPI has begun the process of updating the base year of CPI  from 2012 to 2024.

The OIS curve remained stable despite the rise in US bond yields as the 1yr OIS was lower by 1 bps, ending the week at 6.53% while  the 5yr OIS was up 1 bps ending the week at 6.23%. Banking deposit growth continued to outstrip the credit growth this fiscal as the banking system deposits have grown by 7.80% while credit growth stands at 7.00% in FY25 so far.

 

International Markets

Global bond yields continued their upward trajectory as the benchmark US 10yr bond yield continued to inch higher with the benchmark  10yr yield ending the week at 4.62%, up by 10 bps during the week as bond markets in US factor in fewer rate cuts going ahead along with the challenge of high sovereign debt. In fact, as we look back at 2024, long-end bond yields have risen across the developed market space during the year in spite of rate cuts. On a YTD basis, the US benchmark 10yr bond yield has risen by 72 bps, the UK 10yr gilt yield has risen by 102 bps and the French 10yr bond yield has risen by 63 bps during the course of the year. Japanese bond yields have risen by 49bps so far in this calendar year. This shows that bond markets remain concerned about not only inflation but also about the high sovereign debt burden, which is putting pressure on yields. Meanwhile, Chinese economy continues to struggle with reports  indicated that the Chinese financial services workforce was down 32% compared to 5 years back while in the real estate industry workforce is down 27%.