Market Medley

The Indian financial landscape is undergoing significant shifts, with surplus banking liquidity emerging as a key factor influencing the yield curve. According to a recent analysis , FY25 witnessed wide swings in liquidity—from neutral to deficit to a notable surplus—largely driven by the Reserve Bank of India’s (RBI) dynamic policy tools and interventions. The RBI injected over ₹10 trillion into the system since December 2024, moving the banking system from a liquidity deficit of ₹3 trillion to a surplus of ₹1.25 trillion by March 2025. This intervention was aimed at supporting weak GDP growth, ensuring monetary transmission, and neutralizing forex-related liquidity pressures. Looking ahead, the RBI is expected to distribute a record dividend exceeding ₹2.5 trillion, potentially raising banking and core liquidity above ₹6 trillion. The analysis suggests that sustained liquidity above 1% of Net Demand and Time Liabilities (NDTL), alongside muted credit growth, will likely lead to a s...

 US government bond yields went up this week. The 30-year Treasury yield crossed 5%, and the 10-year yield moved above 4.5%. This increase followed Moody’s decision to downgrade the US government’s credit rating. According to the GMS team, the rise in yields shows that investors are less worried about a recession, expect higher inflation, and are concerned about the US government’s growing budget deficit. As a result, the team now prefers safer investments in Asia-Pacific (APAC), like high-quality government and corporate bonds.

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 In April 2025, the global financial markets witnessed a dramatic sell-off in U.S. government bonds, with 10-year Treasury yields rising by 50 basis points in just five trading sessions—the sharpest weekly spike in over two decades. This turbulence followed the unexpected announcement of U.S. tariffs on April 2nd, which rattled both equity and bond markets.

MM April 2025 Global Fixed Income Strategy report warns of rising downside risks to the US and global economy, citing an uncertain policy environment and new tariff shocks. The firm outlines two equally probable scenarios for US growth: a benign slowdown or a recession, both triggered by trade tensions, fiscal contraction, and geopolitical fragmentation. Tariffs introduced on April 2—dubbed “Liberation Day”—are expected to disrupt real income growth, global supply chains, and export markets, with ripple effects across industries and regions. Financial conditions have tightened, and businesses face high uncertainty, discouraging investment. In response, MM has downgraded its US interest rate stance to neutral and anticipates a softer US dollar. The euro, yen, and renminbi are overweighted, reflecting global repositioning away from US assets. Regionally, the firm remains overweight UK and Australian government bonds and underweight Japanese bonds. Overall, the report stresses that this ...