Bond Market Analysis of Selected Countries for January 2014
February 4, 2014 7.50 PM/FSDH Research
A review of the bond market trading activities in some selected countries for the month ended January 31, 2014 show that there were more price depreciation than gains in most of the markets compared with the month ended December 31, 2013, causing the average yields to increase during the period.
The 7.75% February 2023 Republic of South Africa Bond recorded the highest month-on-month (m-o-m) price loss of 5.33%, due to inflationary pressure which led to a hike in the policy rate by the central bank.
The 7.60% April 2021 Russia Government Bond, the 17% April 2022 Egypt Government Bond and the 16.39% January 2022 Federal Government of Nigeria Bond also recorded a m-o-m price losses of 3.94%, 2.94% and 1.53% respectively. However, the price of the 1.75% May 2023 U.S. Government Treasury Note recorded a growth of 3.35% due to improving economic conditions.
The highest bond price volatility was recorded in the 7.75% February 2023 Republic of South Africa Bond, while the lowest volatility was recorded in the 12.705% June 2022 Kenyan Government Bond.
The U.S. Federal Reserve on January 29, 2014 announced a further US$10bn reduction in its monthly bond purchases to US$65bn, sticking to its plan for a gradual withdrawal of unprecedented easing policy. Real GDP in the United States grew at an annualised 3.2% pace in Q4 2013, as consumer spending grew the most in three years. Also, the Thomson Reuters/University of Michigan's consumer sentiment index fell in January to a final reading of 81.2, from 82.5 in December 2013, but went up from a preliminary reading of 80.4. The sentiment index was hurt by lower expectations among lower and middle-income households.
The Monetary Policy Committee of the Central Bank of Brazil decided on January 15, 2014 to raise the benchmark interest rate by a larger-than-expected 50 basis points to 10.5%. It is the seventh straight rate hike aimed at curbing inflation. Inflation rate in Brazil increased to 5.91%, from 5.77% in November 2013 while the unemployment rate fell to 4.3% in December 2013, the lowest rate on record. Meanwhile, Brazil posted a trade surplus of US$2.56bn in 2013, a sharp fall from the US$19.4bn surplus recorded in 2012.
The People's Bank of China injected more than 255bn Yuan (US$42bn) to meet cash demand, as short-term borrowing costs escalated on January 20, 2014 as demand for cash increased ahead of the Chinese Lunar New Year holiday. Also, the Chinese economy expanded by 7.7% in 2013, the same rate recorded in 2012 and higher than the official target of 7.5%. The Inflation rate stood at 2.5% in December 2013, down from 3% in November, its lowest level since May 2013.
In its January 2014 meeting, Reserve Bank of India (RBI) decided to raise the policy repo rate by 25 basis points to 8% to handle currency pressure and curb persistently high inflation. In December 2013, Indian headline inflation rate slowed to 6.16%, the lowest rate in five months.
In its January 2014 meeting, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) decided to leave the benchmark interest rate unchanged at 12% for the fourteenth straight meeting. The bank also decided to increase the cash reserve requirement on public sector deposits to 75%, from 50%, while the one for private sector deposits was left at 12%, aiming to support the naira. Also, as at December 2013, Nigeria’s annual inflation rate rose slightly to 8%, from 7.9% in November 2013.
At its January 16, 2014 meeting, Central Bank of Egypt decided to leave the overnight deposit rate unchanged at 8.25%, after last month's cut, aiming to fight persistent downside risks to growth. In December 2013, Egypt annual inflation rate slowed for the first time in four months to 11.7%, driven by lower housing, food and utilities’ prices.
Kenyan annual inflation rate increased to 7.21% in January 2014, slightly up from 7.15% recorded in December 2013. At its January 14, 2014 meeting, Central Bank of Kenya decided to leave the benchmark interest rate on hold at 8.5%, as the current monetary policy stance is considered to deliver the desired objective of price stability. The Committee also said there was room for commercial banks to reduce the lending rates.
At its January 29, 2014 meeting, Reserve Bank of South Africa (RBS) decided to raise the repurchase rate by 50 basis points to 5.5%. It is the first rate hike in nearly six years, aiming to protect the Rand and curb expected inflationary pressures. Also, the South African trade balance turned into a surplus for the second straight month in December 2013 to stand at ZAR2.78bn, breaking a two-year cycle of persistent trade deficit; while inflation rate accelerated to an annual 5.4% as at December 2013, after slowing in the previous three months.
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