Foreigners Gorge on Rupee Bonds in Longest Buying Run Since 2015

  • Overseas holdings of debt have risen for eight straight days
  • Currency has gained in July after three months of losses

Overseas holdings of Indian bonds are rising at the fastest pace in 17 months as a rally that sent sovereign yields to three-year lows lures global funds.

Ownership of rupee-denominated government and corporate notes increased by 61.8 billion rupees ($921 million) in the last eight days, the longest stretch since February 2015, National Securities Depository Ltd. data show. Foreigners have turned net buyers in July after paring holdings in the last two months, amid speculation that a successor to Reserve Bank of India Governor Raghuram Rajan will be more dovish as strong monsoon rains improve the inflation outlook for Asia’s third-largest economy.

“Foreigners are returning given India’s growth profile and macro stability,” said Bhupesh Bameta, head of research for currencies and rates at Edelweiss Financial Services Ltd. in Mumbai. “We feel the flows should continue before the markets start factoring in the odds of a U.S. interest-rate increase.”

At 7.28 percent, India’s 10-year sovereign bonds offer the highest yield among major Asian markets, data compiled by Bloomberg show. That’s even as the yield has dropped 17 basis points this month, putting the notes on course for their best month since September. It fell one basis point in Mumbai on Tuesday.

The rupee rose 0.1 percent to 67.1075 a dollar, according to prices from local banks compiled by Bloomberg. The currency has strengthened 0.6 percent this month, paring its 2016 loss to 1.4 percent.

“Risk appetite is back and foreigners are returning to emerging-market assets,” said Badrish Kulhalli, a fixed-income fund manager at HDFC Standard Life Insurance Co. in Mumbai. “We expect foreign buying to continue.”

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