CPI Data to Drive G-Secs and UST This Week

Weekly Market Highlights:

1. The 10-year 2034 G-sec yield remained stable close to 6.77% for the week. G-secs to be driven by CPI data this week.
2. 3M and 6M T-bill auction data yields were at 6.59% and 6.70% respectively compared to 6.56% and 6.72% last week.
3. The INR Bonds High Yield Retail Index stood at 9.79%, up 2 bps fortnightly.
4. Foreign investors purchased a net Rs 70 bn of government securities under the FAR in December 2024 but sold a net Rs 34 bn in January 2025 so far, according to Clearing Corporation of India data. After being net sellers in November, driven by lower-than-expected Q2 growth, the first quarter of the year might be challenging for Indian bond and equity markets due to narrowing spreads.
5. The Indian BFSI sector in Q3FY25 showcased mixed business growth. However, few banks reported strong double-digit deposit and credit growth, maintaining low-cost CASA deposits proved difficult, leading to a shift toward higher-cost term deposits. Profitability faced pressure from increased provisions and competition, and asset quality issues emerged, particularly in the microfinance sector, with rising GNPA and NNPA ratios.
6. FOMC Minutes released Wednesday revealed that Federal Reserve officials, during their December policy-meeting, voiced concerns about inflation and the potential impact of President-elect Donald Trump’s policies. They indicated that uncertainty surrounding these factors could lead them to proceed more cautiously with interest rate cuts.
7. The latest US nonfarm payrolls report shows the economy added 256,000 jobs in December 2024, exceeding the consensus forecast of 155,000, while the unemployment rate fell to 4.1%, contrary to expectations of holding steady at 4.2%. Job growth increased from 212,000 in November, bringing the total for 2024 to 2.2 million jobs, lower than the 3 million added in 2023 and record 6.4 million in 2021 as the economy rebounded from pandemic-induced layoffs.
8. The yield on the US 10-year Treasury note climbed to nearly 4.79% on Friday, marking a 14-month high, following a stronger-than-expected payrolls report that strengthened expectations of the Federal Reserve slowing its pace of rate cuts. UST to be driven by much awaited CPI data this week.