Weekly Interest Rate Future Curve - December 22, 2014 :: Edelweiss, link

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Market Recap

• The benchmark 10-year yield rose sharply last week and closed at 7.96% against the previous week’s close of 7.86%. On the week, the yield rose 13bps, its biggest weekly rise since the week to Aug. 8 when it had risen 10bps. Yields were under pressure post escalating worries over Russian economy, especially with regard to a sharp drop in the Ruble. Emerging Market (EM) currencies slumped in line with the Ruble, including Indian Rupee (which hit a 10-month low of 63.88). FII flows have been negative for the past few sessions due to weakness in Asian equity and currency markets. FIIs sold shares worth a net US$906.8mn over the last eight sessions until Thursday and debt worth US$245.7mn in the three sessions through Wednesday.
• Weakness in the rupee persisted but the local unit still in better shape vis-à-vis most of the EM peers on improved macros. USD continued its upward trajectory on the back of diverging Central Bank policies. The Fed is gearing up to hike interest rates sometime next year. As a result, the US dollar touched a fresh 6-year high against a basket of six major currencies. The Russian Ruble posted weekly depreciation of 2.3% against the USD last week. During early part of the week, the Ruble fell by 16.5%, prompting the Russian Central Bank to hike the borrowing costs by 650bps to 17% with an aim to restrict freefall of the currency. Asian currencies also declined as risk aversion increased globally.

Outlook

• Outlook for the bond market is looking sideways for the week, as FII flows will remain muted due to upcoming Christmas and new-year holidays. Markets for the week will brace for fresh development in Russian markets with the Ruble losing more than 20% despite central bank taking steps to control its fall.
• Better liquidity condition is helping short-term yields to continue their downward trajectory, making the yield curve to steepen further. The 10-year G-sec yield will trade in a narrow band for the next few sessions owing to subdued capital flows from global investors.

LINK
https://www.edelweiss.in/research/Weekly-Interest-Rate-Future-Curve--December-22,-2014/10005336.html