Tag: yields

Corporate bonds will need to offer better returns to compete with govt bonds: Report

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

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Corporate bond issuers in India will have to offer higher returns on their papers as they compete with state-issued government bonds. At the same time, the increasing yields on such bonds have led to a generally decreasing amount of bond issuance, said experts as reported in the Mint.

“Corporate bond issuances have seen a drop amid rising G-sec rates. Investors are looking for higher yields, and they feel yields will go up further from here. There is also a larger quantum of state development loans (SDLs) available at higher yields. Investors, therefore, prefer a higher-yield instrument,” said Ajay Manglunia, Managing Director and Head, Institutional Fixed Income, JM Financial, to Mint.

Three-year AAA-rated corporate bonds have increased their yields to 5.74 percent, a rise of 43 basis points (bps). At the same time, the five-year AAA-rated corporate bonds also have seen an increase in their yield by 36 bps to 6.35 percent. As a result, the volume of issuance of corporate bonds has been decreasing. Corporate bond issuance has dropped to Rs 5.93 trillion in 2021, from Rs 7.87 trillion in 2020.

But the expected hike in interest rates through the year may shake up the bond market once more. A rise in interest rates leads to increased yields, though coupon prices of the bonds would fall consequently.

“Our rates team expects the 10-year government bond yield to rise to 6.75 percent by end-2022 and further to 7 percent by 2023, up from 6.5 percent currently. The yields are likely to move higher on the back of global liquidity tightening, higher rates and higher government deficits. There can be some support from the potential inclusion of India in the global bond index,” said Nomura in a note to its clients.

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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

Rising yields reflection of healthy economy: Manulife Investment Management

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

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Rana Gupta, senior portfolio manager, India equity specialist at Manulife Investment Management, on Monday, said that rising yields are a reflection of the economy doing well.

“In our view, the yields going up is a reflection of the overall economy doing well, although one might argue whether global central banks are now going to add to the balance sheet as much or stop adding in the middle of next year. One has to remember that the corporate balance sheet in the US or in India and the household balance sheets are in good shape. So, there is no reason why the corporates and households should not pick up the baton from the central banks and when that happens, rising rates is a natural phenomenon,” Gupta said, in an interview to CNBC-TV18.

Also Read: How to diversify equity portfolio with global equities

On equity markets, he said, “It will have a sector-specific impact because there are certain stocks, which benefited from lower interest rates and therefore, high valuations etc., so within the market, sector rotation can cause higher rates and better growth and overall as a market aggregate, the kind of returns we have seen in the last one year, may not be repeated because last one year was an early cycle and loose monetary policy.”

Also Read: Indian equity market anticipates substantial economic upmove; real estate, autos exciting: HSBC Global

According to him, consumer discretionary and IT sectors have seen the highest valuation rerating. “Valuations where it has rerated the most, would be consumer discretionary and IT sector, but related to what we discussed about the current situation and sustainable economic growth rate, the domestic cyclicals like financials, real estate, industrials, autos tend to benefit,” said Gupta.

For the entire interview, watch the video.

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

Explained: Why are global markets worried and is this merely a mini wobble?

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

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The MSCI Asia Pacific ex-Japan index is down 10 percent from the start of July. India too got a bit of a wobble last week. The worry can be due to multiple factors — it could be tightening of China’s regulation, delta variant-driven growth downgrades and concerns over the US Fed tapering. So, how are global markets looking overall? Is this just a mini wobble or is something larger afoot?

What is the market worried about?

In terms of data, which we got last week in the US, be it manufacturing, retail sales, housing and National Association of Home Builders (NAHB) housing sentiment – all missed expectations!

Next is the 10-year inflation expectations in the US which have also fallen sharply. This could be a result of the collapse in oil prices that we have seen.

Also Read: Barclays Private Bank sees Fed tapering in December or early January; expects higher volatility ahead

Oil, copper, yields etc., the markers of the global reflation trade, are on a downturn. All eyes are now on Fed chair Jerome Powell’s address at Jackson Hole in Wyoming where the plans for policy normalisation will be watched keenly.

Watch the accompanying video of CNBC-TV18’s Prashant Nair, for a detailed analysis of what the data points are suggesting.

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

Global reflation intact: Three key factors at play

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

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Higher inflation rates in the United States is here to stay. The latest data point which came out from the United States, the April core personal expenditure index which they refer to as PCE which is a key measure of inflation that rose to 3.1 percent much higher than expected which pushes up inflation to 13 years high.

The global reflation trade is very much intact. Not India reflation, but global reflation trade but there are things to take note of.

Number one – increasingly central banks around the world are sounding more and more hawkish.

Secondly, overall markets expect real yields to trend higher. Market pricing of inflation is also peaking a little bit, that may be one reason but anyway market is now expecting real yields to be a little higher.

Lastly, real yields and the US dollar are very strongly correlated. In the 2013 taper period, real yields preceded dollar strength and they have also actually been pretty closely correlated all through the last year and a half or so. So because the expectations in the very near term have moved to slightly higher yields there is a possibility that they could be a tactical upside for the dollar.

Watch the accompanying video for more.

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

BOJ widens yield target band, pledges to buy risky assets only when necessary

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

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The Bank of Japan on Friday widened the band at which it allows long-term interest rates to move around its target, as part of a raft of measures to make its ultra-easy policy more sustainable amid a prolonged battle to fire up inflation.

Following its two-day policy meeting, the central bank also removed its explicit guidance to buy exchange-traded funds (ETF) at an annual pace of roughly 6 trillion yen (USD 55 billion), which gives it more room to wind back its market stimulus.

Instead of buying at a set pace, the BOJ said it would buy ETFs only when necessary while maintaining a 12-trillion-yen ceiling for annual purchases. ”We judged that it was necessary to maintain monetary easing at a sustainable form to achieve our 2 percent inflation target,” the BOJ said in a statement announcing the outcome of its review.

As widely expected, the BOJ kept intact its target of -0.1 percent for short-term rates and 0 percent for the 10-year bond yield under its yield curve control (YCC) policy.

In a review of its policy tools announced on Friday, the BOJ said it would allow long-term rates to move up and down by 0.25 percent around its target, instead of by 0.2 percent.

The BOJ will not apply the rule rigidly when yields move below the band temporarily, it said, stressing the near-term priority was to keep borrowing costs stably low to support an economy hit by the COVID-19 pandemic. ”It’s a very minor change. The difference between 0.25 percent and 0.2 percent is quite small,” said Masaaki Kanno, chief economist at Sony Financial Holdings in Tokyo. ”There’s a long way to go before we even get close to 2 percent inflation,” he added.

In December, the BOJ unveiled a plan to conduct a review of its tools in March to make them more ”sustainable and effective” as the COVID-19 pandemic prolongs its battle to spur growth and inflation with massive monetary support.

Nodding to calls its huge buying was distorting prices, the BOJ said it will buy ETFs only when markets destabilise and confine buying to those linked to TOPIX. At present, it targets both ETFs linked to TOPIX and the Nikkei stock average.

The decision sent the Nikkei average down 1.6 percent and the Topix to a new 30-year high. The benchmark 10-year Japanese government bond (JGB) yield rose 1.5 basis points to 0.115 percent after the announcement.

The BOJ said it will also offer incentives for financial institutions that tap its loan programmes, as part of efforts to mitigate the side-effects of additional interest rate cuts. Specifically, the BOJ will pay interest to financial institutions that borrow from its various lending schemes.

”In practical terms, there is not much for the Japanese economy in these policy tweaks,” said Joseph Capurso, currency analyst at Commonwealth Bank of Australia. ”One thing that the central bank did do is they made some tweaks to their various bank lending facilities. But these are just tweaks and I don’t think that they’re going to change the trajectory of the Japanese economy.”

The BOJ had already been ”stealth” tapering risky asset purchases by sharply reducing buying after ramping it up last year to calm markets jolted by the pandemic.

The challenge for the BOJ would be to convince markets that by making its policy framework sustainable, it can eventually push up inflation to its elusive 2 percent target.

Japan’s core consumer prices fell 0.4 percent in February from a year earlier, data showed on Friday, dropping at a slower pace than in January but remaining distant from the BOJ’s goal.

(USD 1 = 108.9000 yen)

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

EURO is prepping up to dive close to 1.16 levels against US dollar

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

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After a long sustained rally that picked up pace in March 2020 has somewhere come to a halt and EURO seems to have to reverse its trend. Over the period of last 12 months, EURO had risen nearly over 15 percent from 1.0650 to 1.23000 levels before going sideways and now giving a bearish signal. Looking at the fundamentals, technical and price action for the pair, it seems like bears have taken control over the bulls and the euro-dollar can hit bottom close to 1.1650 levels in the medium term. This is suggested by the below-mentioned reasoning:

Fundamentals:

ECB stance on rising yields: The European Central Bank’s rate decision in the upcoming meeting is likely to be ultra-dovish, with ECB officials expressing discomfort with the rise in Eurozone yields in no uncertain terms. Overall, policymakers could step up the pace of asset purchases to counter rising bond yields, which could further hurt growth prospects. That will certainly place more pressure on the euro-dollar pair.

Gloomy Data: Data-wise, European figures seem worrisome as preventive lockdowns continue in the Euro-Zone, with some countries extending them till April. Two particular macroeconomic figures were alarming; retail sales plummeted in Germany and the Euro Zone, while the services sector remained in contraction territory in February. Additionally, inflation in Germany picked up, but that of the euro area remained subdued.

On the contrary, in the US, Manufacturing and Service PMIs remained in expansion territory for consecutive two months and the recent surge in Nonfarm Employment Change, which shined with a reading of 397,000, was the cherry on the cake. Gloomy Euro-zone economic outlook coupled with robust US economic indicators put downward pressure on the EURO.

Crawling Vaccine Rollout: Slow progress in Covid-19 immunization in the EU and extensive lockdowns adds to the gloom perspective. With America now expected to reach 50 percent of its population by late May, the US has continued enlarging its gap from Europe in terms of vaccination. European Commission President Ursula acknowledged the EU’s vaccine rollout failures claiming they were late to authorise and what they ordered was not delivered on time.

Overall, UK has been the most successful in providing vaccine doses and has given nearly 32.3 per 100, US following with 24.3 per 100 doses and EU lagging by just 8.1 doses per 100. The faster the vaccine rollout, the stronger the recovery and stronger the currency has been the new market theory. This has been playing well with USD and GBP and contrasting to EUR.

CFTC Positioning: In the past one-month CFTC EUR speculative net positions on the buy-side have been seen declining on a week-on-week basis. It has fallen from 1,65,000 in the first week of February to 1,26,000 currently. This decline indicates that the sentiments of speculators and traders are turning bearish for the EUR and the long positions are sustainably descending, thereby hinting at further weakness in the EUR.

Surging Dollar: US Treasuries have suffered a sell-off on expectations of more robust growth and ignorance by the Fed to intervene by buying bonds and pushing long-term borrowing costs lower. Since then, the Dollar received two additional shots, the first was a boost to growth prospects and another came from the Senate, which approved a modified version of President Joe Biden’s coronavirus relief package.

Broadly, there is a disagreement whether yields are rising as a result of inflation fears coming from more stimulus, or over-optimism about how more stimulus is going to boost the long-term economic outlook. Either way seems to be boding well for the dollar index; if it is the former, that means tighter Fed policy. If it is the latter, that means a combination of even greater US economic outperformance than might already be priced in and tighter Fed policy. All in all, the dollar looks to be shooting high either way thereby pressuring the EUR.

Technical Aspect:

As the above chart indicates, there is a breakdown in the uptrend of EURUSD. Post the breakdown, the pair has tested the trend line by giving a pullback close to 1.22 levels and followed by a new lower low formation below 1.19 level. This has given a confirmation of the resumption of the bearish trend in the major which could extend close to 1.1650 levels.

Strategy:

Exporters: Exporters having an option of booking in two legs can book euro-dollar on upticks between 1.1950-1.20 levels and book dollar-rupee on upticks close to 73.50-74.00 levels as seen. For a single leg, one can cover on upticks close to 87.20-87.50 levels. Overall, a hedge ratio of 60 percent to 70 percent is advisable

Importers: For once booking in two legs can book dollar-rupee below 73.00 levels and euro-dollar can be kept open and could be targeted to cover around 1.1650-1.1700 levels. For once booking in single are suggested holding and participating on dips close to 85.80-86.20 levels for the near term exposures.

–Amit Pabari is managing director of CR Forex Advisors. The views expressed are personal.

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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

Yields in India must remain in 5-6% range: Shankar Sharma

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

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What triggered the recent sell-off on Dalal Street was the sharp move up in US yields, 50 basis points (bps) in a month. The pace unnerved the markets. Shankar Sharma, Vice Chairman and Joint MD at First Global discussed how will market adjust to higher yields if the upmove continues?

“I am of the view that yields are definitely going to be higher. The real problem is not just the fact that the yields are at 1.4 or that they might trend higher, the real problem is that the world has gotten used to for the last 35-38 years that the US Federal Reserve is blessed with some extraordinary God-like powers,” he said.

“I was on a show with mutual fund people some weeks back and the consensus from every CIO I heard was that leave everything to the Fed, we don’t have to worry about anything at all, they will take care. I think we need to reconsider that now because the pace of the balance sheet expansion, the pace of the stimulus, the quantum of the stimulus is staggering,” he added.

He believes the yields are nothing but a symptom of the underlying problem. “That is effectively what the market’s message is. Yields will trend higher, standalone they may not have been a problem but when you juxtapose that with sky-high deficits on the current account and on the internal fisc for the US – in some sense India is also similar – and the second side of it is getting borne by the currency which is the US dollar – when you see both of these things together which is rising yields, falling currency and a sky-high deficit situation, that is where the problem lies. So I don’t think standalone it is a problem that yields are rising,” he stated.

“In India, from the time I entered the market which was the late 1980s, we were used to very high-interest rates. Therefore equity markets did nothing for 10 years. It is only when yields started to crash and around 2004, they went down to as low as 5 percent, there was a massive bull market in India when we compounded 50-55 percent for three-four years up until 2008 January. There could be a repeat of that kind of return spectrum provided yields in India remain around 5-6 percent levels,” he further mentioned.

On stock-picking strategy Sharma said, “We have been very light on at least the US tech part right from September onwards. We have been long oil and commodities in general from late March and early April and that has worked out as well. Broadly, I do believe that this whole rising yields, weakening US dollar bode well for commodities and that is a trade at least we have been on from April last year. So steel stocks in India, steel stocks globally, copper companies globally, mix plays in India – so you have several companies in India in the ferrous and non-ferrous side, we have played all of those. So I think that is a decent place to be. This is my view as of right now, I will change tomorrow if things change. With that caveat, we think the markets are going to be worrying about inflation if not now I think in the very near–term future.”

“If inflation perks up in India or globally, I think the very logical place to be in is the rural economy. If inflation perks up, there are still ways to make money, one should not get scared, one should be in the rural end of the market,” he said.

According to him, oil has been India’s biggest problem. “The other big problem is oil prices. That is an old bug there from the time I have been born. The only problem India has had is that everything is fine but oil is very high. If oil goes into this so called super cycle that all the strategists and brokerage firms are talking about, then our goose is cooked because if we have rising bond yields, which will again be a corollary, an outcome of higher oil prices because you will need to tighten rates to curb inflation, which will then again push up the yields. It becomes a little bit of a pickle that we might get into. So, if oil goes to USD 70-100 per barrel, India suffers,” he pointed out.

For entire conversation, watch the video

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