Foreign Funds Jump on India Bandwagon Driving Yields to 2013 Low

  • Overseas investors turn net buyers of rupee debt in March
  • Rupee poised for its biggest monthly gain in two years

Foreign funds are boosting purchases of Indian bonds, adding strength to a rally that’s seen the benchmark 10-year yield slide to the lowest level in more than two years.

Overseas holdings of rupee-denominated government and corporate notes climbed 44.8 billion rupees ($670 million) in the last five days, data from National Securities Depository Ltd. show. That’s helped take net inflows for March to 17.2 billion rupees, after last month’s withdrawals of 87.6 billion rupees, which were the biggest since April 2014. Neuberger Berman Group LLC says Indian sovereign debt is attractive from a carry perspective amid the global environment of relaxed monetary policies.

The Federal Reserve’s decision to scale back its projection for 2016 interest-rate increases and bets that India’s central bank will lower borrowing costs have added fuel to the debt rally that began with the government’s Feb. 29 budget commitment to narrow the fiscal deficit to a nine-year low. The rupee is on course for its biggest monthly advance since March 2014 and Citigroup Inc., the world’s largest currency trader, says it can outperform Asian peers should the government execute the budget plans.

“Both global and local factors have turned positive for Indian bonds recently,” said Vivek Rajpal, an interest-rate strategist at Nomura Holdings Inc. in Singapore. “A dovish Fed and European Central Bank have put an environment favorable for emerging-market debt.”

The yield on Indian sovereign bonds due January 2026 sank to 7.50 percent on Monday, the lowest close for a benchmark 10-year security since July 2013. The yield -- which has fallen 27 basis points from Feb. 26, the last trading day before the budget -- was little changed at 7.51 percent in Mumbai, according to prices from the Reserve Bank of India’s trading system.

The rupee gained 0.1 percent to 66.6350 a dollar, according to prices from local banks compiled by Bloomberg. Indian markets will be shut Thursday and Friday for public holidays.

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