Economy & Financial Markets Reviewpnbgilts.com/data/giltnews/1392028319.pdf · The Third Quarter Review of Monetary Policy 2013-14 was announced today. The central decided to: ·

for the fortnight ended 07 February, 2014

Economy & Financial Markets Review

(Rs. Billion)

G-sec MarketDomestic Developments International Developments

Forex Market

Money Market

MACROECONOMIC INDICATORS

Equity Market

Central Bank surprise all market participant – raises policy rate by 25 bps to 8%

.15000Crore deferred stands canceled.Debt switch of Rs27000 crore has all ready been conducted

S c h e d u l e a u c t i o n o f Rs

US treasury yields remained bullish post the scale back announcement in monetary stimulus. 10-yr US treasury yield ends the fortnight at 2.68% as against previous fortnight closing of 2.72%.Crude oil ends fortnight at USD 99.88 as against previous fortnight's closing of USD 96.64 per barrel

During the fortnight bond market remains bearish in first week while second week it is bullish.8.83% GOI 2023 closes the fortnight at 8.74% as against previous fortnight close of 8.74%

Average repo injection during the fortnight stood at Rs. 30,851 crore against previous fortnight average of Rs. 38,357 crore

Rupee remained vulnerable but better than BRICS and other emerging market currencies.

Rupee ends at 62.29/USD vis-a-vis 62.68/USD during previous fortnight.

Equities remained weak due to huge sell off from FIIs and RBI,'s monetary policy impact Sensex & Nifty fall by 3.58% & 3.25% respectively

As on Jan 14

Variationover

the fortnight

Variation over LRF of March

YOY % growth

Aggregate Deposits 75,526 35 8,021 15.68Bank Credit 57,928 29 5,324 14.69Non - food Credit 56,811 48 5,170 14.88Banks Investment in G-Sec

22,160

(144) 2,123 12.84

Broad Money M3

92,936

89

9,116 14.51Reserve Money (Jan 31)

16,108

(169) 9597.77

Forex Reserves (USD bn) (Jan 31)

265

(1.4) 5 1.24

Credit – Deposit Ratio

76.70

LAF Repo Rate (%)

8.00

LAF Reverse Repo Rate (%)

7.00

CRR

4.00

Cash Reserve Ratio (%)

9.00

MSF/Bank Rate

Gilt News 07, February, 2014

2

DOMESTIC DEVELOPMENTS

INTERNATIONAL DEVELOPMENTS

US Treasury

Central Bank surprise all – raises policy rate by 25 bps to 8%

The Third Quarter Review of Monetary Policy 2013-14 was announced today. The central decided to:· Increase the policy repo rate under LAF by 25 bps

from 7.75% to 8.00%.· Keep the Cash Reserve Ratio (CRR) unchanged at

4.00%.

Consequently, the reverse repo under LAF stands at 7.00% and MSF rate and Bank rate at 9%.

The Current Account Deficit (CAD) for 2013-14 is expected to be 2.5% of GDP.

Policy Stance and rationale:Although a fall in the retail and wholesale inflation gives some relief, their core components (i.e., excluding food & fuel) are still on a rising trend.

The RBI has clearly stated that its decision to increase the repo rate is not only consistent with the guidance given in the Mid Quarter Review but also sets economy securely on the recommended disinflationary path. However, it has also been stated that further tightening in the near terms is not anticipated at this juncture if disinflationary process evolves according to the baseline projection. (Recommended by Dr. Urjit Patel Committee)

Furthermore it says:“If policy actions succeed in delivering the desired inflation outcome, real GDP growth can be expected to firm up from a little below 5 per cent in 2013-14 to a range of 5 to 6 per cent in 2014-15, with risks balanced around the central estimate of 5.5 per cent. A pick-up in investment in an environment in which external demand continues to be supportive of export performance could impart an upside to this forecast.

Hereafter, following the recommendation of the Dr. Urjit Patel Committee, monetary policy reviews will ordinarily be undertaken in a two-monthly cycle, consistent with the availability of key macroeconomic and financial data. Accordingly, the next policy review is scheduled on Tuesday, April 1, 2014. “

The US treasury yields remained optimistic and expressed considerable progress during the fortnight. Treasuries fell, pushing the 10-year yield up from almost a two-month low, before the Federal Reserve begins a

USTreasury yield movement during the fortnight

2.55

2.60

2.65

2.70

2.75

2.80

2.85

27-Jan 28-Jan 29-Jan 30-Jan 31-Jan 3-Feb 4-Feb 5-Feb 6-Feb 7-Feb

US

10-y

r Y

ield

(%

)

3


two-day meeting in subsequent days. Treasury 10-year note yields fell to the lowest level in two months as investors sought a haven from emerging-market turmoil even with the Federal Reserve forecast to announce a second reduction in its bond-buying program. The benchmark yields dropped for the first time in three days as the lira weakened from a two-week high even after Turkish policy makers doubled the main interest rate and South Africa boosted its lending benchmark. As expected, the Fed said it will stick to its plan for a gradual withdrawal from departing Chairman Ben S. Bernanke's unprecedented easing policy. It cut its monthly bond purchases to $65 billion from $75 billion. Treasuries rose, with 10-year yields dropping to the lowest level in 12 weeks, as a slowdown at Chinese factories and emerging-market losses from the Federal Reserve's efforts to cut bond purchases drove demand for the safest assets. U.S. debt rallied as a government report showed the Fed's preferred gauge of inflation was at 1.1 percent in December from a year earlier, below the central bank's 2 percent target for a 20th month. The Bloomberg U.S. Treasury Bond Index rose 1.6 percent this month through yesterday, set for the steepest gain since May 2012, as emerging-market assets plunged. However, Treasuries reversed losses after a private report showed U.S. manufacturing slowed more than forecast in January as the Federal Reserve looks to further reduce its bond-buying. Yet, Treasuries rose during the end of the fortnight after U.S. employers added fewer jobs than forecast for a second month in January, adding to speculation that growth in the world's biggest economy may be faltering. The U.S benchmark yields closed at 2.68% against the previous fortnight of 2.71%.

The crude oil market experienced an approximate uptrend during the fortnight. Brent crude futures dropped amid concern that slower Chinese growth and emerging equities markets sinking to their lowest level in more than four months will reduce oil demand. Gasoline rose, following crude higher, amid speculation that signs the economic recovery is stalling will cause the Federal Reserve to slow its plans to ease economic stimulus.West Texas Intermediate crude rose to the highest level in four weeks after data showed the U.S economy expanded as Americans' spending climbed. Prices advanced as much as 1.3 percent. Gross domestic product of the world's biggest oil-consuming country grew at a 3.2 percent annualized pace in the fourth quarter. Yet, West Texas Intermediate crude fell consequently from the highest level of 2014 on concern that developing economies may contract and speculation that prices have climbed more than justified. Yet, West Texas Intermediate crude raised on speculation that distillate inventories fell last week

COMMODITIES

International Crude Oil

Events for Next Fortnight

Date Event Period Prior 12-Feb-14

MBA Mortgage Applications

Feb

0.4%

13-Feb-14

INTIAL JOB LESS CLAIM

1-Feb-08

331K 14-Feb-14

Manufacturing production

Jan

0.4%

18-Feb-14

NAHB Housing Market Index

Feb

56.00

19-Feb-14

Housing Starts Mom

Jan

-9.80%

20-Feb-14

FOMC MINUTE

Jan

57.00

20-Feb-14

INTIAL JOB LESS CLAIM

31-Jan-14

-

21-Feb-14

Home sales

Jan

4.87m

Crude oil price movement during the fortnight

92.0

93.0

94.0

95.0

96.0

97.0

98.0

99.0

100.0

101.0


US

D/b

arr

el


4

during cold weather and as U.S. equities advanced. West Texas Intermediate crude advanced for the second day as applications for U.S. unemployment benefits fell for the first time in three weeks. Jobless claims dropped by 20,000 to 331,000 in the period ended Feb. 1. The crude commodity closed the fortnight at 99.88 USD/barrel against the previous fortnight of 96.64 USD/barrel.

The Indian currency experienced a volatile session followed by impervious range bound movements during the fortnight. The Indian domestic currency opened the fortnight on a fragile tone due to huge sell off by FII in the emerging markets. As a measure of flight to safety, the emerging market currencies experienced a huge sell off on apprehensions that the US monetary stimulus might be reduced again. However, the unexpected monetary policy rate hike during the subsequent day, favored and strengthened the domestic currency on expectations that the increase in interest rates would revive FII inflows again. Yet, the Federal Reserve reduced the US monetary stimulus, in line with the expectations and hence, the emerging market currencies depreciated again. The central bank of turkey took a big leap and raised the interest rate by 425 bps in order to hold Turkish lyra from further plummet. The Indian currency remained weak and depreciated for a couple of days post the announcement of FOMC to reduce US stimulus. Nevertheless, the depreciation in the domestic currency was comparatively lesser than most of the BRICS countries and other emerging economies like turkey, Indonesia and Mexico. The Rupee managed to get out of the slump and recovered as the other emerging market currencies recovered from their lows. The finance ministry ratified the cancellation of the deferred auction scheduled on January 17, 2014 amounting Rs.15,000 crore which in turn, strengthened the Indian currency. The Indian rupee closed at Rs.62.29/USD against the previous closure of Rs.62.69/USD.

The Indian equity market experienced a downtrend during the fortnight. Indian shares slumped on Monday, marking their biggest daily fall since Sept.3 as a rout in emerging markets hit blue chips, while lenders were hurt further by caution ahead of the central bank's policy Review. The emerging markets experienced a huge sell off as U.S. Federal Reserve is poised to continue reducing its monetary stimulus and as fears rise of an economic slowdown in China. The unexpected policy rate hike during the third quarter monetary policy review weakened the interest rate sensitive stocks or other blue chip shares. Subsequently, NSE index fell to a to its lowest close in two months as banks were hit after biggest Indian private lender ICICI Bank said bad loans

FOREX MARKET

EQUITY MARKET

Rupee movement during the fortnight61.50

62.00

62.50

63.00

63.50


Rs/U

SD

Annualised USD/INR Fwd Premia

7.80

8.00

8.20

8.40

8.60

8.80

9.00

9.20

9.40


% p

.a.

Fwd - 3 M Fwd - 6 M

Yield Movement - 91 Day and 364 Day T- Bills

7.00

8.00

9.00

10.00

11.00

12.00

13.00

3-Apr

24-A

pr

15-M

ay

5-Ju

n

26-J

un

17-J

ul

7-Aug

28-A

ug

18-S

ep

9-Oct

30-O

ct

20-N

ov

11-D

ec

1-Ja

n

22-J

an

12-F

eb

Yie

ld(%

)

5


(Rs. Crore)Details of all the Treasury bill auctions held in the fortnight ended 7th February 2014 have been tabulated as under:

Major Stock Indices had risen and it would set aside more funds. The hike in rates did help boost the rupee at a time when emerging markets were under pressure, but stock investors are concerned about its potential impact on economic growth. At the global front, the U.S. Federal Reserve continued to scale back stimulus despite the turmoil in emerging markets. Risk aversion took a toll on Indian banks, knocking them off 2.7 percent. The NSE's banking sub-index, which has lost 9.4 percent in the last six sessions, hit the lowest since October. Indian shares fell constantly with indexes breaking below key support levels due to heavy selling by foreign investors. However, towards the end of the fortnight, The FII players snapped their five-day selling streak and turned out to be buyers today and the Nifty index bounced back marginally from 200 DMA. The Nifty index closed at 6063 against the previous closure of 6267.

During the fortnight Repo injection averaged at Rs. 30,851 crore as against Rs. 38,357 crore a fortnight ago. Average call rate stood at 8.13% during the first week and 7.96% in the second week of the fortnight, while CBLO averaged at 8.00%. Average volume in Call and CBLO market during the fortnight stood at Rs. 15,339 crore and Rs. 61,397 crore respectively.

During the fortnight, RBI issued Rs. 7,000 crore in first weeks in T-bills segment while Rs 13000 crore in second week. Cut off yield on 91 day T-bill stood at 8.90% in the first week and 8.98% in the second week of the fortnight as compared to previous cut off 8.69 % in the last week. Cut off yield on 182-day T-bill stood at 8.92% and on 364 day T-bill stood at 8.97%.

MONEY MARKET

TREASURY BILLS

Primary Market

91- Days T Bill

364 - Day T- BillRepo Rate

24-Jan-14 07-Feb-14 % Change Indian Indices

Sensex

21134

20377

-3.58%

Nifty

6267

6063

-3.25%

FMCG

6523

6505

-0.28%

IT

9530

9169

-3.79%

Banking

12556

11743

-6.47%

Auto

11953

11791

-1.35%

Capital Goods

9624

9402

-2.31%

Healthcare

10183

10337

1.51%

PSU

5704

5614

-1.59%

World Indices

Dow Jones

15879

15794

-0.54%

Nikkei

15392

14462

-6.04%

FTSE

6664

6572

-1.38%

Particulars 91 Day 182 Day 364 Day

Date Of Auction 29 Jan 05 Feb 29 Jan 05 Feb

Cut-off Price (Rs) 97.83 97.81 95.73 91.79

Implicit Yield (%) 8.90 8.98 8.95 8.97

Weighted Avg. Yield (%) 8.86 8.94 8.92 8.96 Competitive Bids Received 9781 14460.75 12636.75 28580.25 Competitive Bids Accepted 4000.00 7000.00 3000.00 6000.00 Non-Competitive Bids Accepted 3355.70 4512.00 0.00 0.00 Total Bills Issued

7355.70

11512.00

3000.00

6000.00

Of which MSS

0.00

0.00

0.00

0.00


6

Secondary Market

GOVERNMENT SECURITIES

Primary Market

Secondary Market Developments

Trading volumes during the fortnight increased to Rs. 31,455 crore vis-à-vis previous fortnight's level of Rs. 27,374 crore. Average daily trading volume stood at Rs. 3,495 crore. Segment wise trades in treasury bills are given in the exhibit. Highest volume of Rs. 13,005 crore was witnessed in the 15-91 days residual maturity bucket. During the fortnight, Foreign Banks, Primary Dealers and Mutual Funds were net sellers while Public Sector Banks, and Private sector banks were net buyers.

Government borrowed Rs. 14,000 crore through dated securities in the first week of fortnight .RBI had reissued 7.28% GS 2019 (Rs 3000 crore), 8.24% GS 2027 (Rs 6000 crore), 9.20% GS 2030 (Rs 2000 crore) and 8.30% GS 2042 (Rs 2000 crore).The under writing fees in the short term paper, 7.28% GOI 2019, 8.24% GS 2027 stood at 4,6.95 while in long term paper 9.20% GS 2030, 8.30% GS 2042 stood at 11, 15 paisa respectively. Among all the papers the 7.28% GS 2019 witnessed the maximum demand, with bid to coverage ratio of 2.73. The cut off yield on 5-yr, 13-yr, 16-yr and 28-yr papers stood at 8.95%, 9.26%, 9.24% and 9.32% respectively.

Government borrowed Rs. 10,000 crore through dated securities in the second week of fortnight .RBI had reissued 8.12% GS 2020 (Rs 3000 crore), 8.83% GS 2023 (Rs 5000 crore) and 8.32% GS 2032 (Rs 2000 crore).The under writing fees in the short term paper and benchmark paper, 8.12% GS 2020 and 8.83% GS 2023 stood at 0.84, 0.84 while 1.24 paisa in 8.32% GS 2032. The cut off yield on 6-yr, 10-yr, and 18-yr papers stood at 9.02%, 8.73%, and 9.15% respectively.

During the beginning of the fortnight, the Indian bond market opened on an optimistic note but subsequently exhibited surge in yields. The 10 year benchmark government security observed a fall in yield, in anticipation of status quo during the 3rd quarter monetary policy review. Since the emerging market currencies also opened on a fragile note, on expectations that the Federal Reserve would scale back its bond buying further, the market remained vulnerable. However, RBI surprised the market by raising the repo rate by 25 bps. The Central bank cited the recommendations of Urjit Patel committee report to achieve a CPI (combined) target of 8%, followed by the rise in core inflation, as the major motive for the hike in policy rate. As a result, the market went turbulent subsequently. In addition to that, the rupee came under pressure after the US Federal

Repo Injections During the Fortnight

37705 37491

30315

34665

31561 31565

29259

20947

27557

0

6000

12000

18000

24000

30000

36000

42000

48000

27-Jan 28-Jan 29-Jan 30-Jan 31-Jan 3-Feb 4-Feb 5-Feb 6-Feb

(Rs

. C

rore

)

SGL Volumes - Treasury Bills

1436

22464

4709

12258

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

22000

24000

Upto 14 days 15-91 days 92-182 days 183-364 days

Residual Maturity

Rs

Cro

re

7


Buying/ Selling Activity during Fortnight: Rs. Crore) Reserve's decision, to further reduce the monetary stimulus. Emerging Asian currencies, in general, were seen worsening as the U.S. Federal Reserve reduced its monthly bond-buying programme, by another $10 billion. Hence, Bond prices closely tracked rupee moves and went bearish. However, The Indian government bonds rose on optimism that the demand for existing government securities will increase, as the government's annual borrowing program, has come closer to the final auction of the financial year. Moreover, the rupee strengthened, snapping a two-day decline and favored the yield movements, as well. The trading volume remained considerably high owing to the bullish trend in the market. The market observed a bullish trend due to rise in demand for existing securities as RBI ratified the cancellation of the deferred auction scheduled on January 17, 2014 amounting Rs.15,000 crore. In addition to that, as a part of the debt switch program, the central bank bought back securities worth Rs 270 billion maturing in 2014-15 and 2015-16 fiscal years and sold equivalent amount of longer tenure securities last week with an institutional investor. During the end of the fortnight, the market players aggressively participated in the last auction of the fiscal year. Hence, the market experienced a weaker trading volume during the end of the fortnight. The G-Sec benchmark yield closed at 8.74% against the previous fortnight of 8.73%.

Trading volumes during fortnight decreased to Rs.326916 crore as against Rs.3, 82,274 crore in the previous fortnight. The first week's average daily trading volume stood at Rs. 30,138 crore vis-à-vis second week's level of Rs. 35,245 crore. The highest single day trading volume was Rs. 47,019 crore. Top two traded securities 8.83% GOI 2023 & 8.28% GOI 2027 cornered 68.91 percent of the top five traded securities volume. During the fortnight, Primary Dealers, Foreign Bank, Primary Dealers, Mutual Funds and Private Sector Banks were net sellers while, Public Sector Banks and Others were net buyers.

Going Forward, the bond market is expected to exhibit an uptrend as the, as the government's annual borrowing program for the financial year has come to an end. The market is expected to rise on optimism that the demand for existing government securities will increase, due to cessation of government securities auction. At the global front, the fall in US nonfarm payroll is expected to favor the domestic currency and hence, the bond market as well. Moreover, as the CPI and WPI data is also expected to ease, the market is expected to be bullish till the announcement of union budget for the year 2014. Ten year bench mark 8.83% GOI 2023 is expected to trade in broad range of 8.63% to 8.73%.

Trading Volumes

OUTLOOK

Total_G_Sec

Total_T_Bill

Foreign Banks

-298.62

-2021.32

Public Sector Banks

7565.40

6618.39

Private Sector Banks

-868.82

844.88

Primary Dealers

-4577.27

-7771.49

Mutual Funds

-3790.17

-135.06

Others

1969.49

2464.61

Yield Curve Movement

8.00

8.50

9.00

9.50

10.00

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30

Tenor (yrs)

Yie

ld(

%)

Feb 07

Jan 24

Most Traded Securities

158803

52490

36545

34822

23972

0

20

00

0

40

00

0

60

00

0

80

00

0

10

00

00

12

00

00

14

00

00

16

00

00

8.83% GOVT STOCK 2023

8.28% GOVT.STOCK 2027

8.12% Govt Stock 2020

8.24% GOVT.STOCK 2027

7.28% GS 2019

Traded Volume (Rs. Crore)

Dated Securities Trading Volumes

36

33

1

34

46

1

22

03

2

20

25

5

34

81

5

25

23

0

30

74

0

39

65

1

36

38

2

47

01

9

0

10000

20000

30000

40000

50000

60000


Rs

. C

rore

Tel. : 2332 5831/2373 6585/6586. Visit us at : www.pnbgilts.com

For any enquiries contact Sr . Exec. Vice President and f or dealenquiries contact Exec. Vice-President (Dealing)

BRANCHES

PNB House, Sir P.M. Road, Fort, Mumbai - 400 001. Tel. No. 022-22693314-17, 22614823, 22691812 Fax No. 022-22691811, 22692248.

Navdeep House, Near Income Tax Circle, Ashram Road, Ahmedabad - 380 006. Tel. No. 079-7582506 Fax No. 079-7541808.

Published by PNB Gilts Ltd., 5, Sansad Marg, New Delhi - 110 001. The information and opinions contained herein have been compiled fromsources believed to be reliable. However PNB Gilts Ltd., does not warrant its accuracy or correctness. This should not be construed as an offer tobuy or sell any securities. Portions of this document in part or whole may be reproduced or published provided the source is duly acknowledged.


SPREAD MONITOR

Spread Over One-Year Paper

C/o PNB Back Office, 3rd Floor, Kuralagam Building , NSC Bose Road, Chennai - 600108, Tel: 044-25331751/1752, Fax: 044-25330179

(in Rs. Crore)

YTM

TTM

24-Jan

07-Feb

Change in YTM (bps)

364 Day T Bill

1.00

8.65

8.91

26

7.32% GOI 2014

0.70

8.67

8.87

20

7.17% GOI 2015

1.35

8.33

8.44

11

7.02% GOI 2016

2.53

8.47

8.64

17

8.07% GOI 2017

3.40

8.51

8.62

11

7.99% GOI 2017

3.42

8.57

8.67

10

8.24%GOI 2018

4.21

8.69

8.83

14

8.19% GOI 2020

5.94

8.92

9.02

10

8.79% GOI 2021

7.76

9.07

9.15

8

8.15% GOI 2022

8.35

9.07

9.14

7

8.13% GOI 2022

8.62

9.07

9.14

7

7.16% GOI 2023

9.28

9.03

9.09

6

9.15% GOI 2024

10.78

9.05

8.96

-9

8.20% GOI 2025

11.64

9.07

9.17

10

8.33% GOI 2026

12.42

9.06

9.17

11

8.28% GOI 2027

13.63

9.09

9.14

5

8.97% GOI 2030

16.84

9.06

9.14

8

7.50% GOI 2034

20.52

9.03

9.15

12

7.40% GOI 2035

21.60

9.03

9.17

14

8.33% GOI 2036

22.35

9.02

9.15

13

8.30% GOI 2040

26.42

9.02

9.14

12

8.83% GOI 2041

27.86

9.02

9.14

12

8.30% GOI 2042

28.92

9.03

9.14

11

INFLOWS

OUTFLOWS

Date

Security

Coupon Receipts

Date

Security

Scheduled auction amount

12-Feb-14

10.47% GOI 2015

228

15-Feb-14

8.20 % GOI 2022

2363

15-Feb-14

8.24 % GOI 2027

2900

15-Feb-14

8.28 % GOI 2032

3754 February 9-

14, 2014

No Auction

16-Feb-14

5.32% GOI 2014

133

17-Feb-14

7.02% GOI 2016

2106

February 17-21, 2013

No Auction

Total Inflows 11485 Total Outflows 0

-75

-50

-25

0

25

50

75

100

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30

Tenor (yrs)

Sp

rea

d(b

ps

)

Jan 24

Jan 24

Documents

Economy & Financial Markets Reviewpnbgilts.com/data/giltnews/1392028319.pdf · The Third Quarter Review of Monetary Policy 2013-14 was announced today. The central decided to: ·