BlackRock Bullish as India Bond Rally Sends Yields to 3-Year Low

  • June’s increase in consumer prices in line with estimates
  • Money searching yields will flow to emerging markets: Axis

Indian bonds extended a rally, driving benchmark yields to a three-year low, as foreign holdings of local debt jumped the most since March and an inflation gauge rose in line with estimates.

BlackRock Inc. is overweight on rupee notes, Scott Thiel, deputy chief investment officer for fundamental fixed income at the world’s largest asset manager, said in London Tuesday as overseas investors added 16.9 billion rupees ($252 million) to their holdings of Indian government and corporate securities. That’s the biggest single-day increase since March 30, National Securities Depository Ltd. data show.

The yield on sovereign notes due January 2026 slipped five basis points, the most since March 17, to 7.28 percent in Mumbai, according to prices from the central bank’s trading system. That’s the lowest close for a benchmark 10-year security since June 2013. The yield has dropped 10 basis points over two days and 17 basis points so far this month.

“In the global search for yields, money will find its way to emerging markets,” said R Sivakumar, Mumbai-based head of fixed income at Axis Asset Management Co., which oversees about 378 billion rupees. “The headline inflation number is in line with expectations and domestic investors, sitting on the sidelines for a long time, are now participating in the rally.”

Consumer prices rose 5.77 percent in June from a year earlier, after a 5.76 percent increase in May, official data showed after the close of markets on Tuesday. That compares with the 5.79 percent median estimate in a Bloomberg survey of economists. Bonds rallied on Tuesday as speculation mounted that the nation’s yet-to-be-named new central bank chief will be more aggressive in cutting interest rates.

BlackRock is overweight local debt in India, Brazil and Russia, Thiel told reporters in London. “We have active positions in these markets. It’s a confluence of changes in the economic policy, changes in inflation profile, stabilization of oil prices,” he added.

The rupee strengthened 0.2 percent to 67.0550 per dollar, prices from local banks compiled by Bloomberg show. The currency, which has depreciated 1.3 percent this year, could slide to a record 69.50 by year-end, according to Kotak Mahindra Bank Ltd., the top forecaster based on Bloomberg’s quarterly rankings.

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