Indian Bonds Rise on Speculation Foreign Funds to Boost Holdings

India’s 10-year government bonds rose on speculation global investors will continue to boost holdings, attracted by Asia’s highest investment-grade yields.

Standard Chartered Plc favors local sovereign notes as the nation’s new government accelerates economic reforms amid expectations that inflation will ease, according to Chief Investment Strategist Steve Brice. Money managers at Amundi Asset Management and Union Investment Privatfonds also said last week that they consider Indian bonds attractive.

The yield on the 8.4 percent notes due July 2024 fell one basis point, or 0.01 percentage point, to 8.55 percent in Mumbai, prices from the central bank’s trading system. It climbed six basis points last month.

“Foreign investors’ appetite for local bonds remains strong, which is boosting confidence,” Debendra Kumar Dash, a fixed-income trader at DCB Bank Ltd. in Mumbai, said by phone. “India’s growth outlook is improving and inflows will accelerate if policy makers are able to contain inflation.”

International funds bought a net $2.82 billion of rupee-denominated corporate and government securities last month, according to exchange data compiled by Bloomberg. That marked a fourth straight month of inflows and boosted foreign holdings of debt in India to a record $42 billion.

India’s gross domestic product rose 5.7 percent in the three months ended June from a year earlier, the biggest gain since the quarter through March 2012, official data showed on Aug. 29. The median of 48 estimates in a Bloomberg News survey was for a 5.5 percent gain.

Slower Inflation

Consumer-price gains in India slowed to 7.96 percent in July from as high as 11.16 percent in November as the Reserve Bank of India increased borrowing costs three times since September. Modi’s government has eased the foreign-investment cap in the defense industry and announced plans to build more highways, coal-fired power plants, airports and ports.

“We’re pretty bullish on the new leadership being able to push through the reforms, and we expect inflation to drift lower and ultimately allow the authorities to start easing policy,” Singapore-based Brice said on Aug. 29. “The current risk-on environment continues to favor high-yielding markets.”

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, were unchanged from Aug. 28 at 8.46 percent, data compiled by Bloomberg show. Indian markets were shut Aug. 29 for a public holiday.

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