Lower domestic inflation expectation would drive Gsec yields further lower

Weekly Market Highlights:

1. 10 year 2034 Gsec yields closed at 6.87%, down by 5 bps on weekly basis.
2. Weekly Gsec auction cut-off for the 2034 and 2064 stood at 6.8915% and 7.0782% respectively.
3. 3M and 6M T-bill auction data yields were at 6.6251% and 6.7284% respectively, down by 3-6 bps on a weekly basis.
4. On 8th August, with a 4:2 majority, the MPC decided to keep the policy rates unchanged. Despite strong credit growth RBI highlighted deposit growth risk in banks which may lead to some liquidity risk.
5. India's July CPI inflation will be released on Monday and is anticipated to drop below the RBI's 4% target because of a high base, which would drive yields lower.
6. India’s forex reserves are at a record high of USD 675 billion while the domestic market liquidity surplus stood at Rs.165.61 billion down 16%.
7. The INR Bonds high yield Index stood at 9.744% down 3 bps biweekly basis.
8. Global markets eye US CPI and PPI reports as compared to June, both the headline and core CPI are anticipated to rise by 0.2%, following a 0.1% fall and a 0.1% rise respectively in the previous period.
9. US Industrial production is expected to slow to a 0.1% rise, from a strong 0.6% increase in June might further strengthen inflows to Indian Gsecs further pushing up yields.
10. US weekly unemployment benefit claims dropped more than expected to 233,000 from an estimate of 240,000 leading to a 14.8 bps jump in the US 10 year to 3.94% as recession fear cooled down.