Thursday, August 1, 2013

India's short-term yield goes vertical; RBI struggling

Here is a quick update on India's ongoing financial stress. Capital outflows from stocks over the past couple of months reached a post-2008 high, prompting Goldman to downgrade the nation's equity market.
Bloomberg: - Foreigners sold a net $2 billion of domestic debt last month through July 30, extending the record $5.4 billion withdrawal in June. The two-month outflow from stocks reached $2.8 billion, the most since the global financial crisis in November 2008, regulatory and exchange data compiled by Bloomberg show. Goldman Sachs cut its rating on the nation’s shares to underweight in a report dated July 31.
The rupee is trading near record lows as RBI's recent actions are proving to be ineffective. With liquidity conditions remaining tight, the short end of the government curve is under severe pressure. The one-year note yield has gone vertical, approaching 10%. The yield curve remains heavily inverted, with further economic slowdown sure to follow.

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