Tag: Bond Market

Adani Green Energy likely to tap dollar bond market in March: Sources

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Adani Green Energy is likely to raise $500 million by issuing dollar bonds in March, two officials aware of the plans said, making it the first Adani group company to return to the overseas bond market in a year.

“The company is doing the groundwork and talking to investors to get a sense on pricing,” said a foreign banker, who is a part of the discussions.

“Once there’s more clarity on pricing and demand, they will finalise the details and tap the market,” the banker said.

Part of billionaire Gautam Adani’s ports-to-power conglomerate, Adani Green is likely to use some of the proceeds from the proposed bond issue to refinance existing debt that will mature this year, the officials said.

Both the officials and the banker spoke on condition of anonymity as they are not authorised to speak to the media.

Adani Group did not respond to Reuters’ e-mail seeking comment.

A report by U.S. short-seller Hindenburg Research in January last year had led to a sell-off in stocks and overseas listed bonds of Adani group companies, forcing them to retreat from the foreign currency bond market and buy back $315 million of listed overseas debt securities.

Since then, most of the group’s foreign bonds are back above the levels they traded at before the Hindenburg report, giving the company comfort to look at a fresh issue of dollar bonds.

Adani Green Energy conducted non-deal roadshows in January and reached out to investors in Hong Kong and Singapore. It will soon start roadshows for the proposed bond issue, the officials said without elaborating on the timing.

The company is in talks with foreign banks and investors and is yet to appoint arrangers for this issue, the banker said.

“The spreads for Adani Group’s dollar bonds have come down from last year, so the deal should get reasonably priced,” according to the banker.

Adani Green Energy recently completed the funding to redeem its $750 million bonds due in September, eight months before they mature.

On Tuesday, Moody’s revised Adani Green’s rating outlook to “stable” from “negative” considering the company’s improved financial flexibility and reduced refinancing risk after the repayment of senior notes.

The rating agency also affirmed Adani Green’s Ba3 rating, which reflects predictable cash flow backed by long-term power purchase agreements and high financial leverage.

Among other Adani group companies, Adani Transmission may also tap the overseas bond market this year, according to merchant bankers.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Indian rupee and bond markets face uncertainties amid global shifts

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Indian rupee rose this week amid a marginal 5 basis points drop in bond yields after Bloomberg Index Services announced the inclusion of Indian bonds in its emerging market local currency index from September.

However, the journey for the rupee and bond markets holds numerous challenges, ranging from the US Federal Reserve’s rate cut trajectory to the Reserve Bank of India’s (RBI) alignment with the Fed, and the upcoming Union Budget (vote on account) in India scheduled for February 1.

In a conversation with CNBC-TV18, B Prasanna, Head of the Global Markets Group at ICICI Bank, discussed the intricacies of rate cuts, along with insights into the bond and rupee markets.

Prasanna highlighted a significant difference between market expectations and the US Fed’s stance on the rate cuts anticipated in the first year of the cutting cycle. While the Fed suggests around 75 basis points, the market leans towards 140 basis points, creating a substantial gap.

Also Read | India bonds may be included in Bloomberg EM index from September: Statement

Prasanna mentioned that ICICI Bank is forecasting a more moderate rate cut of 100 basis points, possibly reaching 125, contrary to the higher expectations of 140 to 150 basis points from some market participants.

Prasanna expects the dollar to weaken due to declining US yields. However, the favourable growth differential between the US and the rest of the globe may limit the weakness.

For the rupee, Prasanna highlighted the RBI’s effective management of volatility, anticipating a movement to the level of 82/$ in the near term.

For more details, watch the accompanying video

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Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Sebi plans to introduce ‘fast track’ concept for public issuance of debt securities

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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To deepen the bond market, the Securities and Exchange Board of India (Sebi) is looking to introduce the concept of ‘fast track’ public issuance for debt securities and further reduce the face value of debt securities, including non-convertible debentures, issued on a private placement basis to ₹10,000 from ₹1 lakh at present. If implemented, the move would also promote ease of doing business.

“The main intention of a fast track public issuance of debt securities is to facilitate frequent issuers with a consistent track record, to make public issues of debt securities with reduced time, cost and effort,” Sebi said in its consultation paper.

To further enhance the participation of non-institutional investors in the corporate bond market, Sebi has “proposed to permit issuers to launch NCDs (non-convertible debentures) or NCRPS (non-convertible redeemable preference shares) with the face value of ₹10,000.”

However, in such cases, the issuer should appoint a merchant banker who would carry out due diligence for the issuance of such privately placed NCDs and NCRPS and disclosure requirements in the private placement memorandum, Sebi said.

Further, such debt securities should be plain vanilla with a simple structure and should not have any credit enhancements or structured obligations, it added. This came after Sebi in October 2022 cut the face value to ₹1 lakh from ₹10 lakh earlier. The decision, along with the mainstreaming of Online Bond Platforms (OBPs) has helped enhance the participation of non-institutional investors in the bond market.

During the period from July to September 2023, it was observed that non-institutional investors subscribed to 4% of the total amount raised as compared with the general average of less than 1%. Besides, the total volume of trades undertaken on the OBPs aggregates to around Rs 333 crore by 1974 users (investors), Sebi noted.

Further, the regulator has suggested the requirement of appointment of a merchant banker in case of issuance of Securitised Debt Instruments (SDIs) at a face value of ₹10,000.

Sebi suggested that instead of inserting the audited financials for the last three financial years and Stub period financials in the offer document, the same should be allowed to be provided as a QR code scanning which opens the web link to the financials on the issuer’s website.

Further, details of certain information required for the current year such as Related Party Transactions (RPTs), and remuneration of directors among others to be specified as required up to the latest quarter. Also, Sebi has suggested that record dates should be standardised 15 days before the due date of payment of interest or redemption.

The regulator has “proposed to consider, like equity issuance, an avenue to debt issuers to make the issuance of public issues on fast-track basis”.

Suggesting modalities, Sebi said that the need to seek comments from the public on a draft offer document for fast-track public issues should be reduced to two working days. Also, it proposed that the timeline for listing fast-track public issues of debt securities should be T+3 as opposed to T+6 for a regular public issue, a move aimed at considerably bringing down the timelines for raising funds through debt securities.

The issuers opting for the route should be allowed to utilize electronic modes to advertise the public issue and the requirement of advertising in newspapers should be done away with. Such issues should be kept open for a minimum of one working day and a maximum of 10 working days.

It has been proposed that the requirement for minimum subscription for banks and entities in the financial sector, when undertaking issue through the route, should be abolished.

Further, the retention limit should be fixed at a maximum of five times of base issue size to provide more flexibility to the issuers in terms of fundraising. The Sebi has sought comments from the public till December 30 on the proposals.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Explained | Why global markets are rallying

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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US markets welcomed a surprisingly softer core inflation in October as it signalled a nearing end to the US Federal Reserve’s interest rate hikes.

US Consumer Price Index (CPI) rose 3.2% in October from the same period last year, but showed no change compared to the previous month. The lower than anticipated readings were led by a 2.5% drop in energy prices, balanced out by a 0.3% increase in food prices.

The core CPI, excluding the volatile food and energy prices, also saw a lower than expected increase of 0.2% monthly and 4% annually. The annual rise marked the lowest since September 2021.

Market traders largely discounted the likelihood of future interest rate hikes by the US central bank, per CME Group data.

Dean Kim, Head-Global Research Product, William O’Neil + Co. told CNBC-TV18, “If we do see continued Producer Price Index (PPI) print coming in cooler than expected, definitely we should see changing character in terms of the way the Fed is thinking. I think that sentiment is kind of spreading towards other markets, in Asia.”

It must be noted that Fed Chair Jerome Powell has consistently emphasised that the central bank remains open to the possibility of raising rates again if deemed necessary.

“If it becomes appropriate to tighten policy further, we will not hesitate to do so,” Powell said in opening remarks of a panel discussion at an International Monetary Fund conference in Washington on November 9.

US equities have been on an uptrend in November with the S&P 500 gaining over 6% on hope the rate hike cycle has concluded and that there will be a rate cut next year. The index is on track for its most impressive month since October 2022.

Data compiled by Bloomberg over the past 22 years indicates that a 5% or more increase in the S&P 500 by mid-November meant positive moves for the rest of the year. Expanding the analysis to the last 50 years, this trend was positive in 26 out of 30 instances, with the declines in the four exceptions being 1% or less.

The positive inflation data also led to two-year treasury yields plunging over 20 basis points and the US dollar falling 1.5%.

A fund managers’ survey by Bank of America Corp indicated that investors exhibited their highest optimism in bonds since the global financial crisis, expressing strong confidence that interest rates will decrease in 2024.

Interest rates and bond yields move oppositely. Higher interest rates cause bond prices to drop and yields to rise, as older bonds with lower rates become less appealing than new, higher-rate bonds. Conversely, lower interest rates lead to higher bond prices and lower yields

Also Read | US markets climb, bonds tumble after unexpected inflation slowdown; S&P 500 gains 2%

The increase in bond yields has played a pivotal role. Yields, which were below 4% in July, rose to nearly 5% in early November, a trend that prompted the Fed to take a more cautious approach.

Action in the Indian market

Markets in India also rallied on cues from global equities with the Nifty 50 opening at a one-month high of 19,651.40 on November 15. The last time it was above this level was on October 18, 2023, when the index had closed at 19,671.10.

The headline retail inflation rate in the country too eased to a five-month low in October, per government data released on November 13. Retail inflation was broadly in line with estimates at 4.87% in October compared to 5.2% in September.

While inflation has cooled for the second straight month and is well within the Reserve Bank of India’s (RBI’s) tolerance band of 2% to 6%, experts believe a repo rate cut still remains distant as there is uncertainty in food prices, particularly for kharif crops.

Food inflation, which rose 6.61% in October,  contributes to nearly half of the overall consumer price basket in the country.

(with inputs from CNBC and Bloomberg)

For more details, watch the accompanying video

Also, catch all the live updates on markets with CNBC-TV18.com’s blog

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

JPMorgan to add India to EM bond index from June 28: Experts decode the impact

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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In a pivotal move set to reshape the landscape of global financial markets, JPMorgan announced that Indian government bonds will be added to its Emerging Markets Debt Index, effective from June 2024.

On September 21, 2023, as the Federal Reserve displayed an uncharacteristic hawkish stance, most bonds and currencies in emerging and developed markets took a hit. However, Indian bonds defied the trend, ending the day on a slightly higher note. This performance was driven by widespread expectations of their imminent inclusion in JPMorgan’s Emerging Markets Debt Index. Indeed, these expectations materialised, with India finding a place in the GBI EM Global Index Suite, specifically within the GBI EM Global Diversified (GBIEMGD) index.

The GBIEMGD index boasts a total market capitalisation of $213 billion as of the current assessment. According to JPMorgan, India will garner a weight of 10 percent in this index, effective from June 28, 2024. This initial percentage will gradually increase over the subsequent 10 months. The financial arithmetic points to a substantial influx of capital: $21 billion in total, approximately $2 billion per month, or 1,75,000 crore in Indian currency terms.

While the formal inclusion begins in June of the following year, the positive repercussions are already rippling through India’s financial ecosystem. The 10-year bond yields are expected to decrease, with some experts even foreseeing them dipping below the 7 percent mark. This development is particularly advantageous for banking stocks, as it leads to mark-to-market gains, offsetting previous losses incurred due to incremental cash reserve ratio (CRR) changes.

However, the most significant advantage is anticipated in the form of reduced borrowing costs for the Indian government. As the sovereign’s borrowing rates decline, this benchmark effect will cascade to other entities, such as corporates, leading to cheaper financing options. This broad-based reduction in borrowing costs is poised to boost India’s equity market, stimulating economic growth and investment.

Ajay Seth, DEA Secretary said, “It is a welcome development and shows confidence in the Indian economy.”

Harsha Upadhyaya, President & CIO – Equity, Kotak Mahindra AMC acknowledged the far-reaching benefits, noting that the lower cost of funds and increased resource availability for corporates and the government will enhance India’s resilience and economic outlook.

B Prasanna, Head-Global Markets Group at ICICI Bank underscored the significance of this move, anticipating substantial passive and active money flows in the coming year. He emphasised the need to assess both short-term and long-term impacts. Lakshmi Iyer, CEO-Investment & Strategy, Kotak Alternate Asset Managers, added her perspective, describing this development as a significant milestone that investors have been patiently waiting for.

Gary Schlossberg, Global Strategist at Wells Fargo Investment Institute, pointed out that the influx of capital into the bond market aligns with the global backdrop of heightened caution regarding interest rates and economic outlook. The expectation is that global interest rates may trend lower next year due to a potential global economic slowdown.

Sandeep Bagla, CEO of TRUST Mutual Fund, said that it marks a long-anticipated moment, spanning a decade. He emphasised the overwhelmingly positive nature of this development. The only drawback for the market, however, is that the actual influx of funds is slated for July 2024, which translates to a waiting period of approximately 9-10 months.

For more details, watch the accompanying video

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3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

From banks’ strong earnings growth to long-term investment trends —JPMorgan on India’s economy

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Banking sector in India presents an attractive investment opportunity as they are one of the few sectors in the market where valuations remain acceptable, say experts from JPMorgan, a leading global financial services firm.

Sharing their views on various aspects of India’s financial landscape and growth drivers in a recent discussion on CNBC-TV18, three experts from JPMorgan spoke about the potential of India’s banking sector, bond market and the long-term investment trends.

Sajjid Chinoy, Chief India Economist at JPMorgan, highlighted bond market heterogeneity, emphasising a critical issue concerning heterogeneity within the bond market in particular.

He said, “The larger issue is not so much about the quantum of money. It is to just have some more heterogeneity in the investor space in the bond market. The more heterogeneity you have, the better price discovery will have in both directions.”

Chinoy also highlighted the influence of bond and debt money on indices, noting that India’s 10 percent weight can bring stability in good times and cushion against shocks during adverse times. He views this passive money as a source of long-term investment that allows India to tap into the global pool of savings to finance its current account deficit.

Sanjay Mookim, Head of India Equity Research at JPMorgan, expressed his views on market sentiment, emphasising the link between India’s equities and global equity sentiment. Mookim believes that while India’s long-term growth potential remains intact, short-term market movements often align with global sentiment. He referred to the current market sentiment as “dovish.”

Mookim also highlighted the banking sector’s strength, pointing out its robust earnings growth. He believes that banks present an attractive investment opportunity, as they are one of the few sectors in the market where valuations remain acceptable.

He said, “Banks anyway, look great to us, because earnings growth is strong, it’s probably the only sector in the market where valuations are acceptable so the core argument is still very strong for banks.”

Read Here | JPMorgan to add Indian bonds to its emerging markets index from June 2024

Kaustubh Kulkarni, Sr Country Officer-India at JPMorgan, emphasises investor representation and the ‘China+1’ theme.

“The ‘China Plus One’ narrative is actually interesting. Existing Indian businesses that were already in the export area, including, let’s say pharmaceuticals, chemicals, agrochemicals, and engineering goods, all those are seeing substantial growth and traction. So a reasonable amount of investments are actually being done.  And they are benefiting because of customers looking to shift away from their existing sources and supply chains in China,” Kulkarni said.

He added; “ But the larger question is, whether the existing large capacity, which is operating in China and Taiwan also looks for alternatives outside. As far as India is concerned, it is still relatively early.”

Regarding investor representation, Kulkarni noted that JPMorgan India Investor Summit 2023 has drawn the participation of nearly 400 investors, marking a significant increase of approximately 50 percent compared to the previous year.

Of these investors, nearly 300 are focused on equity investments, while around 100 are engaged in debt investments. On the debt side, we have engaged with approximately 75 companies, collectively representing an impressive market capitalisation of approximately 1.2 trillion in the Indian market.

Also Read | India says it did not offer any tax incentive to get its bond included in JPMorgan’s EM index

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Experts share insights on potential of Indian bond market for investors

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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As the US Federal Reserve signalled a potential end to interest rate hikes, the question arises, will interest rates in India follow suit? With the Reserve Bank of India (RBI) already on pause, it is worth considering if this spells a potential opportunity for debt fund investors. Suyash Choudhary, Head of Fixed Income at Bandhan Mutual Fund stated that India is currently at the peak of the rate hike cycle and investors should look at bond funds for investment.

“In the last 1.5 years, the bond market has been more volatile than any other asset classes, making it a more attractive option for investors,” he told CNBC-TV18.

“Rate hike expectations globally are now peaking and they have matured. India has compressed its external account very remarkably. So, external imbalances that faced us last year are out and inflation is on a downward trajectory. So, we are at the top of a rate hike cycle. Investors should be looking at quality fixed income, especially in the three to six area in our view. This would curb reinvestment risk as the cycle matures and some modest amount of rate cuts come through even in India, probably over 2024,” he said.

Lakshmi Iyer, CIO (Debt) and Head of Products at Kotak Mahindra Asset Management stated that the momentum in the Indian bond market seems to be sustaining, with yields coming closer to 7 percent mark.

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Iyer is not rooting for a rate cut and believes that interest rates have plateaued.

On the other hand, Indranil Sengupta from CLSA India believes that the RBI will cut rates by 100 basis points from October 2023 onwards. He is confident that the central bank is looking for a 100 basis point rate cut from October.

“I am very confident that the RBI will not want to sit at 6.50 percent rate, given where the global economy is and where we are in terms of growth. Inflation will also be coming down in the coming months. We are looking at 100 basis point rate cut,” Sengupta told CNBC-TV18.

Sengupta believes that RBI can easily come down to a 5.5-5.75 percent interest rate. He also pointed out that the rupee appreciated when RBI slashed rates.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

India’s corporate debt market fund will help boost liquidity and confidence in the bond market

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Indian government’s Rs 30,000 crore safety fund for the corporate bond market would help deepen it and also boost investor confidence, market analysts and fund managers said. The fund, which was ideated in Budget 2021, will be called the Corporate Debt Market Development Fund (CDMDF). Its purpose would be to stabilise and deepen the corporate debt market in stressful situations — for example when the global COVID-19 pandemic hit in 2020 — that could impact liquidity in the system.

The fund will run like an alternative investment fund (AIF) scheme.

SBI Mutual Fund has been tasked with managing this fund. For now, it will only cover debt mutual funds, except overnight funds and gilt funds, industry sources told CNBC TV18. Open-ended debt fund will have to contribute 25 bps of their assets to the CDMDF. In addition, asset management companies (AMCs) will also contribute some amount from their books to this fund.

“The CDMDF will be an AIF category 1 fund and SBI MF has been given the responsibility to manage it. It is a welcome step taken by the government and it will be good for the interest of the market as well as investors. Initially, we are looking at a 10 percent contribution from AMCs and the total value of the scheme will be somewhere around Rs 30,000 crore. However, we are hoping that with the increase in size of the AUM, this amount will increase to Rs 40,000-50,000 crore,” DP Singh, Deputy Managing Director at SBI Mutual Fund, said.

Global events such as the COVID-19 pandemic, heavily impacted liquidity in the corporate debt market. Such situations have led to debt fund investors taking big hits on their net asset values (NAVs). In some cases such as Franklin Templeton’s, fund houses had to shut down schemes to protect the money in debt mutual funds.

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Right after the liquidity crisis of 2020, Finance Minister Niramala Sitharaman had proposed the formation of a facility that could help market participants in situations such as a COVID-induced liquidity crisis. “To instill confidence among the participants in the Corporate Bond Market during times of stress and to generally enhance secondary market liquidity, it is proposed to create a permanent institutional framework. The proposed body would purchase investment grade debt securities both in stressed and normal times and help in the development of the bond market,” Sitharaman had said in her Budget 2021 speech.

The CDMDF will look to buy at five-year investment grade securities at fair value in such illiquid situations in the market. According to sources, the fund can take 10x leverage in such situations. “The decision of when the fund should be activated in a stressful situation, or if the situation is grave enough to use the fund, will be taken by the SEBI board after consideration of data points and outlook of the market,” the sources said.

Market participants believe that this move can positively impact the debt mutual funds in different ways. They said this can help mutual funds recover the loss of confidence that happened after the liquidity crisis in 2020. “We all know that Franklin Templeton was not a default issue, it was a liquidity issue. That issues became so big that investors started redeeming even from schemes that had liquid securities. I think having a government backing helps a lot on the ground and even psychologically. Distributors can now tell investors that in situations of crisis, their funds will be helped the government. At least there is a provision now. So, this will be a good step from investor confidence point of view,” Joydeep Sen, independent debt market analyst, said.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

The great bond bubble is ‘poof, gone’ in worst year since 1949

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Week by week, the bond-market crash just keeps getting worse and there’s no clear end in sight.

With central banks worldwide aggressively ratcheting up interest rates in the face of stubbornly high inflation, prices are tumbling as traders race to catch up. And with that has come a grim parade of superlatives on how bad it has become.

On Friday, the UK’s five-year bonds tumbled by the most since at least 1992 after the government rolled out a massive tax-cut plan that may only strengthen the Bank of England’s hand. Two-year US Treasuries are in the middle of the longest losing streak since at least 1976, dropping for 12 straight days. Worldwide, Bank of America Corp. strategists said government bond markets are on course for the worst year since 1949 when Europe was rebuilding from the ruins of World War Two.

The escalating losses reflect how far the Federal Reserve and other central banks have shifted away from the monetary policies of the pandemic when they held rates near zero to keep their economies going. The reversal has exerted a major drag on everything from stock prices to oil as investors brace for an economic slowdown.

“Bottom line, all those years of central bank interest-rate suppression — poof, gone,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “These bonds are trading like emerging market bonds, and the biggest financial bubble in the history of bubbles, that of sovereign bonds, continues to deflate.”

The latest leg downward was fueled by the Fed meeting Wednesday, when the central bank raised its policy-rate range to 3 percent to 3.25 percent, its third straight 75-basis-point hike. Policymakers indicated they expect to push the rate beyond 4.5 percent and keep it there, even if it exacts a large toll on the economy.

Underscoring that point, Fed Chair Jerome Powell said the bank “is strongly resolved to bring inflation down to 2 percent, and we will keep at it until the job is done.” The broad inflation gauge that the Fed targets, the personal consumption expenditures price index, is expected to show a 6 percent annual increase in August when it’s released on September 30.

The scale of the expected interest-rate hikes will likely only deepen the Treasury market’s losses since in previous monetary-policy tightening cycles yields have tended to crest near the Fed’s target rate.

For now, only policy-sensitive front-end Treasuries are trading at yields above 4 percent, with the five-year briefly breaching that mark on Friday. Longer-dated yields are lagging the rise as traders price in the risk of a recession. Still, the 10-year hit as much as 3.82 percent Friday, a 12-year high.

“With more Fed rate hiking coming and quantitative tightening, as well as the possibly more government debt issuance down the road amid less Treasury buyers out there now, it all just means higher rates,” said Glen Capelo, managing director at Mischler Financial. “The 10-year yield is definitely going to get closer to 4 percent.”

In the coming week, the market may face fresh volatility from the release of the inflation data and public speaking engagements by Fed officials including Vice Chair Lael Brainard and New York Fed President John Williams. Also, the sale of new two-, five- and seven-year Treasuries will likely spur trading volatility in those benchmarks, since the market typically seeks a price concession before the auctions. The week will also mark the end of the month and the quarter, usually, a time of diminished liquidity and elevated volatility as money managers adjust holdings.

A broad Treasury index has been swamped by escalating losses and is heading for a drop of over 2.7 percent in September, its worst since April. It’s down over 12 percent this year.

“Whether 4.6 percent is the peak rate or they have to go further depends on the inflation trend,” said Andrzej Skiba, head of the BlueBay US fixed-income team at RBC Global Asset Management, who is cautious about being exposed to longer-dated interest-rate risk. “The market is totally at the mercy of incoming inflation data, and while our view is that inflation will decline, the degree of confidence in that forecast is low.”

What to Watch

Economic calendar:

Sept. 26: Chicago Fed national activity index; Dallas Fed manufacturing index

Sept. 27: Durable goods orders; Conference Board consumer confidence; FHFA house price index; Richmond Fed manufacturing index; New home sales

Sept. 28: MBA mortgage applications; Pending home sales; wholesale and retail inventories

Sept. 29: Weekly jobless claims; 2Q GDP revision

Sept. 30: Personal income and spending (with PCE deflator); MNI Chicago PMI; University of Michigan sentiment, inflation expectations
Fed calendar:

Sept. 26: Boston Fed President Susan Collins; Cleveland Fed President Loretta Mester; Atlanta Fed President Raphael Bostic

Sept. 27: Chair Powell on digital currencies; San Francisco Fed President Mary Daly; Chicago Fed President Charles Evans

Sept. 28: Bostic, Evans

Sept. 29: Mester, Daly

Sept. 30: Vice Chair Brainard; New York Fed President Williams

Auction calendar:

Sept. 26: Two-year notes; 13- and 26-week bills

Sept. 27: Five-year notes

Sept. 28: Two-year floating-rate notes; seven-year notes

Sept. 29: 4- and 8-week bills

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Russia’s exclusion may pave way for India into global bond index

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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By Subhadip Sircar and Ronojoy Mazumdar

India has the biggest bond market among emerging economies that’s not covered by global indexes, but bankers say that may change soon, potentially drawing in billions of dollars in inflows. Russia’s recent exclusion is one reason why.

Morgan Stanley expects an announcement that India will be included in JPMorgan & Chase Co.’s emerging markets bond index as early as mid-September with the actual entry in the third quarter next year. Goldman Sachs Group Inc. sees that announcement coming in the fourth quarter this year and inclusion in the second or third quarter in 2023. Both expect India’s weight at 10%, the maximum for a country in the index, and potential inflows of $30 billion from the move.

Getting high-yielding Indian sovereign bonds into global indexes would make it easier for overseas investors to put their money into Asia’s third-biggest economy with its $1 trillion debt market. It would follow many false starts over the years that resulted from wariness about debt inflows and disagreements including one on tax breaks for foreigners. Russia’s exclusion from the JPMorgan gauges after it invaded Ukraine may have added to incentives for the index compilers to fill the hole with Indian debt.

JPMorgan, one of the major index providers, has been collecting feedback from investors over including India in its Government Bond Index – Emerging Markets Global Diversified, or GBI-EM. More than 60% of real money investors are ready or almost ready for India’s inclusion, a Morgan Stanley survey showed. A spokesperson for JPMorgan in India declined to comment.

“India would offer much needed diversification to the GBI-EM index given the different structure of its economy, and so would be a strong addition to the index from a long-term perspective,” said Nivedita Sunil, portfolio manager for Asia and EM debt at Lombard Odier (Singapore) Ltd. “We have held consultations with the index provider and we are broadly supportive of it.”

Bond traders in India have had their hopes dashed in the past on index inclusion. There were widespread expectations in February that the government would announce a tax break for foreign investors in the budget that would facilitate trading of the nation’s debt on platforms such as Euroclear.

Dashed Expectations

Instead, the budget was silent on the issue. Officials have said they decided not to exempt international bond transactions from taxes, and they would like settlement of bonds to be done locally.

“India has its own size and heft to act on its own,” said Aninda Mitra, head of Asia macro and investment strategy at BNY Mellon Investment Management. “But it is important to make a strategic decision and stick with it, rather than send out conflicting signals.”

Meanwhile, in the GBI-EM index Russia had a weight of about 8% before it was removed, and now there are seven countries with a weight of 10% each and 13 countries sharing the remaining 30%, according to the Morgan Stanley note.

“The exclusion of Russia has made the index more concentrated and unbalanced,” Morgan Stanley strategists Min Dai, Madan Reddy and Gek Teng Khoo wrote in a note early September. “Hence JPMorgan has more incentive to include India even without Euroclear, as long as GBI-EM investors don’t object to that.”

India is currently ‘on track’ to be placed on index watch for inclusion in JPMorgan’s bond index, according to the bank. It’s also on the FTSE Russell watch list to get into its emerging market debt index.

Bloomberg LP is the parent company of Bloomberg Index Services Ltd, which administers indexes that compete from those by other service providers.

Renewed market talk on index inclusion helped revive flows into rupee-denominated bonds last month after six continuous months of outflows. Foreign inflows will be crucial to meet the nation’s ever-growing bond supply as its funding needs expand. Yields are headed for a third month of decline with the benchmark 10-year bond yield down more than 30 basis points since June.

Authorities have taken some steps to ease rules for foreigners. Recent regulations like allowing custodian banks to pre-fund trades on behalf of foreign investors and extended settlement timings are examples, according to Goldman Sachs. Still, key issues remain.

“We think the two biggest operational challenges are account opening time and the burdensome trading requirements,” said Eric Lo, a fixed-income fund manager at Manulife Investment Management. He said it can take up to nine months to open a local India bond trading account, but operational constraints like those aren’t a “show stopper” for the firm to invest in the market.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow