Zephyr Financial Publishers Pvt Ltd

Live training Session forUTI AMCArjun ParthasarathyFounder INRBONDS.com09/10/141

AgendaGovernment Borrowing

Government Bond Yields

Corporate Bond Yields and Credit Spreads

Money Market Securities Yields09/10/14www.investorsareidiots.com2Government BorrowingOutstanding stock of government bonds 31st March 2014 INR 37 trillion or USD 596 billionNet addition to stock in fiscal 2014-15 INR 4.53 trillion or USD 72 billion Bonds maturing in 2015-16 and 2016-17 - INR 1.76 trillion (USD 28 billion) and INR 2.31 trillion (USD 37 billion)Demand will be crucial to absorb supply

09/10/143Ownership Pattern 09/10/14www.investorsareidiots.com4Demand DynamicsBanks deposit base Rs 80 trillion (USD 1.3 trilllon)

Growth in Bank Deposits 22% SLR Growth is Crucial

Demand Drivers- Higher FII limits, Insurance Penetration, Higher PF Base and Retail Participation through MF09/10/14www.investorsareidiots.com5Government Bond YieldsDetermined by Government Borrowing, Inflation and Liquidity

Macro economic conditions key to bond yield movements

Global factors equally important for bond yields

09/10/146Government Bond Yield Curve09/10/147State Development LoansOutstanding SDL INR 10.9 trillion (USD 176 billion)Fiscal 2014-15 borrowing INR 2.15 trillion (USD 34 billion)States Hold INR 1.36 trillion ( USD 22 billion) of T-Bills Trade at spreads to government bonds Median spread around 50bps

09/10/148SDL Spread Curve09/10/14www.investorsareidiots.com9Corporate BondsOutstanding as of June 2014 INR 14.80 trillion (USD 232 billion)Insurance Cos and PFs investments at INR 11.65 trillion (USD 194 billion)MF INR 2 trillion (USD 33 billion), FII INR 1.15 trillion (USD 19 billion)Carries Interest Rate Risk, Credit Risk and Liquidity Risk09/10/1410Corporate Bond Yields09/10/1411Rating dependent with higher rating carrying lower yields and lower rating carrying higher yields

Determined by Outlook for Interest Rates, Corporate Debt Levels, Outlook for Economy and Domestic and Global Liquidity

FIIs likely to turn major players in the market as limits open up (currently USD 51 billion)Credit SpreadsDifference between corporate bonds yield and government bonds yields of similar maturities known as credit spreads

Highly volatile in times of financial market stress

Driven by liquidity more than any other factor

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09/10/1414Money Market SecuritiesOutstanding T-Bills as of Sep 2014- INR 3.42 trillion (USD 55 billion)

Outstanding CD/CP as of Sep 2014 INR 3 trillion (USD 49 billion), INR 2.3 trillion (USD 38 billion)

Liquidity key component in levels of yields in Money Market securities

09/10/1415Money Market Security YieldsOvernight rates (CBLO, Call and Repo and Term Repos determine T-bill, CP/CD yields

RBI policy rate and system liquidity determine overnight and term rates

Money market security yields are highly volatile in times of liquidity stress

09/10/1416Thank You09/10/1417Information herein is believed to be reliable but Arjun Parthasarathy Editor: INRBONDS.com and Zephyr Financial Publishers Private Limited does not warrant its completeness or accuracy. Opinions and estimates are subject to change without notice. This information is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The financial markets are inherently risky and it is assumed that those who trade these markets are fully aware of the risk of real loss involved. Unauthorized copying, distribution or sale of this publication is strictly prohibited. The author(s) of the content published in the site inrbonds.com may or may not have investments in the assets discussed in the pages/posts.Copyright INRBONDS by Arjun Parthasarathy 2013