Data has largely been inflationary
Macro-economic data has largely been inflationary. In the US, high wage growth is driving retail sales higher, and this is a clear sign of a self-fulfilling inflationary cycle.
India’s trade deficit came in at an 18 year high on high import bill for oil and gold. Coal prices are rising on high demand while on the logistics side supply disruptions are taking up transportation costs sharply higher. Lack of availability of containers and ships are also hurting exporters.
Core inflation is sticky at around 6% levels and this is likely to rise on demand supply gap. Given all these data that point to rising inflation, bond markets are likely to stay wary even at higher levels of yields. Markets will watch for incremental data to seek direction and this data is largely expected to be inflationary given growth and supply bottlenecks.
India Traded data-Sep 21
India’s merchandise exports increased by 22.63% year-on-year to USD 33.79 billion in September while merchandise import soared by 85% on yearly basis to USD 56.39 billion. Consequently, trade deficit stood at USD 22.59 billion during the month.
US Inflation-Sep 21
US consumer price inflation rose to 5.4% year on year, up from 5.3% in August. On a monthly basis, CPI rose 0.4% against the expectation of 0.3%.
US Retail Sales-Sep 21
US retail sales rose 0.7% month on month in September 21, after rising an upwardly revised 0.9% in August and against the expectation of a 0.2% decline in sales.
US wage growth-Aug 21
US wage growth stood at 9.49% in Aug 21 on yearly basis as compared to 10.32% in previous month.
Baltic Dry Index came down by 243 points to 4410 on 22nd October 2021.
Government bonds, SDL and OIS yield movements
During last week, 6.10% 2031 yield rose by 3 bps to 6.36% while 5.85% 2030 yield increased by 3 bps to 6.32%. On the other hand, 5-year benchmark bond, 5.63% 2026 yield rose by 7 bps to 5.73%. 6.64% 2035 yield rose by 4 bps to 6.85%. 6.57% 2033 yield rose by 3 bps to 6.73%. Long-term paper, 7.16% 2050 yield rose by 1 bps to 7.12%
The spread of 10-year bond over 5-year bond came down to 62 bps from 66 bps in previous week. The 15-year benchmark over 10-year benchmark spread increased to 38 bps from 37 bps, while 30-year benchmark over 10-year benchmark spread rose to 71 bps to 69 bps on weekly basis.
Average 10-year SDL auction cut-off came down to 6.99% from 7% in previous week while spread came down to 60 bps from 67 bps in previous week.
On weekly basis, 1-year OIS yield rose by 14 bps to 4.19% while 5-year OIS yield increased by 12 bps to 5.57%.
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