India's 10-Year Bonds Rise as Global Funds Boost Debt Holdings

Updated on
  • State govt bonds see strong demand from overseas investors
  • India a preferred destination for foreigners: Edelweiss

India’s 10-year sovereign bonds advanced for a second day on signs global funds are snapping up the nation’s debt after being allowed greater access to the market.

Foreign holdings of rupee-denominated government and corporate notes climbed 69.41 billion rupees ($1.1 billion) in the last two days, the most since August last year, data from the National Security Depository Ltd. show. Overseas funds also purchased 28.53 billion rupees of bonds issued by Indian states since Monday, when the sector opened to them for the first time. The rupee halted a two-day decline.

“We have seen significant inflows and that’s reflecting in bonds,” said Ajay Manglunia, the Mumbai-based head of fixed income at Edelweiss Financial Services Ltd. That shows India remains a preferred destination among foreign investors, he said.

The yield on government notes due May 2025 fell one basis point to 7.55 percent in Mumbai, according to prices from the Reserve Bank of India’s trading system. That’s within four basis points of its close on Oct. 5, which was the lowest for benchmark 10-year debt since July 2013.

Sovereign bonds rallied after the central bank on Sept. 29 cut interest rates by more than economists estimated and relaxed curbs on foreign investment in the securities. The 10-year yield will drop to 7.40 percent by year-end, a Bloomberg survey of 15 fixed-income dealers and fund managers showed on the day.

Overseas holdings rose as India auctioned 56 billion rupees of debt quotas on Monday, enabling them to buy more sovereign bonds. Bids received were more than three times the amount on offer. The NSDL data show that overseas investors have in just two days exhausted 82 percent of their investment limit of 35 billion rupees for state-government bonds for this year.

The rupee rose 0.2 percent to 65.04 a dollar, according to prices from local banks compiled by Bloomberg. The currency has climbed 0.9 percent in October after rallying 1.4 percent last month in the best performance among 24 emerging-market exchange rates tracked by Bloomberg.