As per latest data published, U.S. job growth rose more than expected in July indicating the strengthening of the economy. During July 2022, nonfarm payrolls rose by 528,000 and the unemployment rate was 3.5% against Dow Jones estimates of 258,000 and 3.6%, respectively. In the same line, wage growth also increased, hourly earnings jumped by 0.5% for the month and 5.2% from a year ago.
Given the resilience of the economy from the corona pandemic disaster, now the major concern for US Fed is we to control consumer inflation. Therefore, it is expected that another 75bps rate hike is on the cards in the next policy meeting.
In last RBI MPC meeting, repo rate was hiked by 50bps. However, in the current scenario of global rate hikes, elevated domestic inflation and sharp depreciation of the rupee, 50bps hike may not be sufficient. Given the expected 75 bps rate hike by US Fed, the market now eyes the quantum of rate hike in the next policy meeting.
Government bonds, SDL and OIS yield movements
Last week, 10-year benchmark 6.54% 2032 paper yield came down by 2 bps to 7.30%. The 5-year benchmark bond, 6.79% 2027 yield decreased by 3 bps to 7.04%. 3-year benchmark 5.22% 2025 yield rose by 3 bps to 6.78%. Long-term paper, 6.99% 2051 yield declined by 3 bps to 7.65%.
The spread of 10-year bond over 5-year bond rose by 1 bp to 25 bps from 26 bps as compared to the previous week. The 15-year benchmark over 10-year benchmark spread declined to 20 bps from 22 bps while the 30-year benchmark over 10-year benchmark spread decreased to 35 bps from 36 bps on a weekly basis.
Average 10-year SDL auction cut-off declined to 7.65% from 7.82% in previous week while spread rose to 46 bps from 45 bps.
On a weekly basis, 1-year OIS yield stood came down by 3 bps to 6.11% while the 5-year OIS yield came down by 10 bps to 6.19%.
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