Indian bonds and the rupee posted their biggest weekly advances since October as the Federal Reserve’s interest-rate increase removed uncertainty from financial markets.
“With the Fed event out of the way, we expect investors to now focus on local factors,” said R. Sivakumar, Mumbai-based head of fixed income at Axis Asset Management Co., which oversees about 319 billion rupees ($4.8 billion). “Bond yields should soften as the market turns attention to the Indian central bank’s interest-rate cuts, which it had ignored.”
Fed Chair Janet Yellen signaled the U.S. central bank was in no rush to raise borrowing costs again after the first rise in almost a decade on Wednesday. That’s spurred optimism demand for rupee-denominated debt will pick up after global funds pared holdings in the run-up to the Fed’s decision. The S&P BSE Sensex index of Indian shares also climbed this week.
The yield on the notes due May 2025 fell five basis points from Dec. 11 to 7.73 percent in Mumbai, its biggest weekly slide since the period ended Oct. 2, according to prices from the Reserve Bank of India’s trading system. It rose two basis points on Friday. The RBI has lowered the benchmark repurchase rate by 125 basis points in 2015 to 6.75 percent.
The rupee strengthened 0.7 percent, the most since the week ended Oct. 9, to 66.4025 a dollar, prices from local banks compiled by Bloomberg show. It was little changed on Friday.
Foreign holdings of government and corporate bonds have dropped by 78.5 billion rupees since the end of October, National Securities Depository Ltd. data show, contributing to the nine-basis point increase in the 10-year sovereign yield in that period. The rupee has weakened 1.7 percent since Oct. 30.