🔍 Watch the Fixed Income Market Outlook for July!📊💡 Discover the latest trends and insights to stay ahead.🚀🌟

#marketoutlook #fixedincome #debtmarket

In June, the guiding theme for debt markets was the monetary policy decisions by the Reserve Bank of India, RBI, and the central banks globally including the US Federal Reserve, Fed.

Markets also witnessed oil production cuts by OPEC and a slew of positive macro data releases in India and the US.

PPS rise in yields for all bonds over 1 year.

Additionally, there was a broad-based rise in global bond yields.

The yield on the benchmark 10-year G-Sec stood at

The RBI's Monetary Policy Committee, MPC, maintained a cautious stance ahead of the U.S.

While the central bank retained its status quo on interest rates, the MPC members stressed on the 4 percent target for headline inflation.

Fed policy was a consensus pause, but the policy members released Fed.plot chart that showed to further potential hikes while the members were upbeat on macro economy data projections.

The euphoria witnessed in the bond market since April 2023 partially reversed and currently bond yields have already priced in the events.

Markets now anticipate a long pause from the RBI and almost no rate cuts till April

2024, and to rate hikes from Fed and no rate cuts till early 2024.

as widely expected, CPI Inflation declined to a two-year low of 4.25% in May from

Favourable base effects and a decline in food prices were the reason for the fall.

is deficient due to a strong El Nino and this could push up food prices.

India's economic growth over the quarter remained resilient at

Meanwhile, industrial production rose 4.2% in April, up from a revised 1.7% in March supported by investment and consumer demand.

The broad-based rise growth indicates that despite weak external demand, lower inflation and higher CAPEX-supported industrial activity.

US cooled to its lowest in more than 2 years, but core inflation still remains persistent.

The Fed may find it difficult to hike rates more than once.

Its emergency liquidity program to address regional bank crisis led to temporary gush of liquidity and marginal relief to weakening economic data.

Good macro data and sticky inflation would mean that the Fed maintains higher interest rates

Recent data releases suggest ongoing weakness in the manufacturing sector, although services sector remains strong.

In the past 9 months, markets have priced in soft landing to a recessionary scenario almost twice, and this created huge volatility in global bond yields.

Whilst the slowdown in economic growth has been lower than anticipated, higher rates for a longer period would eventually hurt growth.

Markets are pricing in a soft landing and any data weakness would lead to global bond markets' yields to rally.

Oil prices continue to trade around $70 despite a surprise production cut by OPEC to boost oil prices given weak demand.

We expect weak macroeconomic outlook for China and lower commodity prices to prevail and this bodes well for inflation to remain lower globally.

In the near term, bond markets might see a marginal upside of 5 to 10 BPS in yields.

We believe investors should use this rise in yields to increase duration across their investments.

at peak of both inflation and interest rate cycle and anticipate limited upside in yields from this point.

Banking liquidity should remain positive in near term and bond prices are indicative of the supply pressures within the bond markets.

Consequently, in the next 3 to 6 months, we expect a fall of 20 to 40 BPS in yields across the curve beyond 1 year.

We do expect the yield curve to steepen post a first rate cut by the RBI.

Demand from insurance and mutual funds could decline but 2000 rupees note deposits in banks approximately 2.25 trillion rupees already deposited will ensure more than sufficient SLR demand from banks in near term.

From a portfolio standpoint, in line with our medium-term view, our portfolios currently run duration at the higher end of the respective investment mandates.

Our expectations of incrementally softening yields across the curve and a possible policy pie vote in favour of softening rates in the latter half of the financial year.

This has already been factored into the current portfolio positioning.

Recovery in credit spreads over the last 3 to 4 months

has also made corporate credit, AA and above, attractive from a risk-reward standpoint.

For investors with a medium-term investment horizon, we continue to believe Actively managed duration strategies offer ideal investment solutions to capitalize on a falling interest rate outlook and attractive carrier opportunities as compared to comparable traditional investment solutions.

Mutual fund investments are subject to market risks.

Read all scheme-related documents carefully.


Speaker 0: Fixed Income Market Outlook July 2023

Speaker 1: In June, the guiding theme for debt markets was the monetary policy decisions by the Reserve Bank of India, RBI, and the central banks globally including the US Federal Reserve, Fed. Markets also witnessed oil production cuts by OPEC and a slew of positive macro data releases in India and the US. All these together led to a

Speaker 0: 10-12

Speaker 1: PPS rise in yields for all bonds over 1 year. Additionally, there was a broad-based rise in global bond yields. The yield on the benchmark 10-year G-Sec stood at

Speaker 0: 7.11%, up 12 PPS from last month.

Speaker 1: The RBI's Monetary Policy Committee, MPC, maintained a cautious stance ahead of the U.S. Fed's June policy meet. While the central bank retained its status quo on interest rates, the MPC members stressed on the 4 percent target for headline inflation. The U.S. Fed policy was a consensus pause, but the policy members released Fed.plot chart that showed to further potential hikes while the members were upbeat on macro economy data projections.

The euphoria witnessed in the bond market since April 2023 partially reversed and currently bond yields have already priced in the events. Markets now anticipate a long pause from the RBI and almost no rate cuts till April

Speaker 0: 2024, and to rate hikes from Fed and no rate cuts till early 2024. On the domestic front,

Speaker 1: as widely expected, CPI Inflation declined to a two-year low of 4.25% in May from

Speaker 0: 4.70% a month ago.

Speaker 1: Favourable base effects and a decline in food prices were the reason for the fall.

Speaker 0: 1 needs to see whether the monsoon

Speaker 1: is deficient due to a strong El Nino and this could push up food prices. India's economic growth over the quarter remained resilient at

Speaker 0: 6.1%.

Speaker 1: Meanwhile, industrial production rose 4.2% in April, up from a revised 1.7% in March supported by investment and consumer demand. The broad-based rise growth indicates that despite weak external demand, lower inflation and higher CAPEX-supported industrial activity.

Speaker 0: Market View Headline inflation in the

Speaker 1: US cooled to its lowest in more than 2 years, but core inflation still remains persistent. The Fed may find it difficult to hike rates more than once. Its emergency liquidity program to address regional bank crisis led to temporary gush of liquidity and marginal relief to weakening economic data.

Speaker 0: Good macro data and sticky inflation would mean that the Fed maintains higher interest rates

Speaker 1: for long and this could

Speaker 0: in effect add to the woes of

Speaker 1: the already weakening US economy. Recent data releases suggest ongoing weakness in the manufacturing sector, although services sector remains strong. In the past 9 months, markets have priced in soft landing to a recessionary scenario almost twice, and this created huge volatility in global bond yields. Whilst the slowdown in economic growth has been lower than anticipated, higher rates for a longer period would eventually hurt growth. Markets are pricing in a soft landing and any data weakness would lead to global bond markets' yields to rally.

Oil prices continue to trade around $70 despite a surprise production cut by OPEC to boost oil prices given weak demand. We expect weak macroeconomic outlook for China and lower commodity prices to prevail and this bodes well for inflation to remain lower globally. In the near term, bond markets might see a marginal upside of 5 to 10 BPS in yields. We believe investors should use this rise in yields to increase duration across their investments.

Speaker 0: Structurally, we believe we are

Speaker 1: at peak of both inflation and interest rate cycle and anticipate limited upside in yields from this point. Banking liquidity should remain positive in near term and bond prices are indicative of the supply pressures within the bond markets. Consequently, in the next 3 to 6 months, we expect a fall of 20 to 40 BPS in yields across the curve beyond 1 year. We do expect the yield curve to steepen post a first rate cut by the RBI. Demand from insurance and mutual funds could decline but 2000 rupees note deposits in banks approximately 2.25 trillion rupees already deposited will ensure more than sufficient SLR demand from banks in near term.

From a portfolio standpoint, in line with our medium-term view, our portfolios currently run duration at the higher end of the respective investment mandates. Our expectations of incrementally softening yields across the curve and a possible policy pie vote in favour of softening rates in the latter half of the financial year. This has already been factored into the current portfolio positioning.

Speaker 0: Recovery in credit spreads over the last 3 to 4 months

Speaker 1: has also made corporate credit, AA and above, attractive from a risk-reward standpoint. For investors with a medium-term investment horizon, we continue to believe Actively managed duration strategies offer ideal investment solutions to capitalize on a falling interest rate outlook and attractive carrier opportunities as compared to comparable traditional investment solutions. Mutual fund investments are subject to market risks. Read all scheme-related documents carefully.

See all Axis Mutual Fund transcripts on Youtube

📈🔍 Fixed Income Review for July 2023 is here!