Rupee Volatility Drops as Foreigners Resume India Debt Purchases

  • Overseas funds buy 3.2 billion rupees of Indian bonds Monday
  • Yield on 10-year sovereign notes falls to lowest since May 17

A gauge of expected swings in India’s rupee fell to a two-week low on optimism the impact of Brexit on local financial markets will be limited and the nation’s relatively higher bond yields will continue to lure investors.

Foreign holdings of rupee-denominated notes rose 3.2 billion rupees ($47.1 million) on Monday, the most since May 30, National Securities Depository Ltd. data show. They fell by 53.1 billion rupees last week. A sale of debt quotas worth 69.5 billion rupees to overseas investors on Monday attracted bids amounting to 93.5 billion rupees, according to a statement from BSE Ltd. India’s benchmark 10-year bonds offer the highest yields among major Asian markets after Indonesia, data compiled by Bloomberg show.

The rupee’s one-month implied volatility, used to price options, fell 51 basis points to 6.66 percent in Mumbai, data compiled by Bloomberg show. The measure touched 6.58 percent earlier, the lowest since June 15. The currency ended little changed at 67.9550 per dollar in the spot market, erasing an advance of as much as 0.3 percent. The rupee pared gains as oil importers were seen buying dollars to pay their month-end bills, said Arnab Sardar, a currency trader at Dhanlaxmi Bank Ltd. in Mumbai.

“A sense of relief is dawning on investors that India won’t be hugely impacted by Brexit,” said Anindya Banerjee, associate vice-president for currency derivatives at Kotak Securities Ltd. in Mumbai. “Indian debt markets are in no danger and foreign funds will see value on relative basis.”

Least Impacted

India’s economy will be among the region’s least impacted by Brexit given its relatively low exposure to trade, Morgan Stanley economists wrote in a June 26 report. The rupee has weakened 2.7 percent in 2016, making it Asia’s worst-performing currency.

Sovereign bonds gained, with the yield on notes due January 2026 dropping one basis point to 7.45 percent, its lowest close since May 17, according to prices from the central bank’s trading system. That’s still 598 basis points more than the yield on similar-maturity U.S. Treasuries. The S&P BSE Sensex index of Indian shares climbed 0.5 percent.

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