Indian Sovereign Bonds Climb With Rupee on Fed’s Rate Outlook

Indian bonds rose the most in two weeks and the rupee snapped a three-day loss amid speculation demand for emerging-market assets will be sustained after the Federal Reserve signaled it is unlikely to raise rates before April.

The Federal Open Market Committee announced yesterday it will be “patient” on the timing of the first U.S. interest-rate increase since 2006, replacing a pledge to hold borrowing costs near zero for a “considerable time.” Fed Chair Janet Yellen said the FOMC’s statement should be interpreted that “it is unlikely to begin the normalization process for at least the next couple of meetings” in January and March.

The yield on Indian government bonds due July 2024 slid six basis points, or 0.06 percentage point, to 7.91 percent as of 10:30 a.m. in Mumbai, prices from the central bank’s trading system show. That’s the biggest decline since Dec. 2. The rupee advanced 0.6 percent, the most in two months, to 63.2550 a dollar, prices from local banks compiled by Bloomberg show.

“The Fed’s clarification that it won’t be raising rates too soon has comforted the markets,” said N.S. Venkatesh, the Mumbai-based head of treasury at IDBI Bank Ltd. “Investors see long-term value in holding Indian debt and the rupee.”

Indian bonds, stocks and the rupee have all retreated this week as the possibility of higher U.S. rates next year and concern the global economy may falter amid plunging oil prices and a currency crisis in Russia sparked a selloff in emerging markets. The rupee touched a 13-month low of 63.8850 a dollar yesterday as foreign funds turned net sellers of local debt and equities this week.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, fell five basis points today to 7.87 percent, according to data compiled by Bloomberg.

Three-month offshore non-deliverable forwards for the rupee gained 0.6 percent to 64.30 a dollar, data compiled by Bloomberg show. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

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