Bonds in India Rally Third Day as Foreign Banks Boost Purchases

  • State elections, dovish Fed helping flows: Standard Chartered
  • Overseas lenders have been net buyers for 11 straight days

Indian sovereign bonds climbed for a third day as foreign funds boosted holdings amid expectations of more economic reforms after Prime Minister Narendra Modi’s party won elections in a key state.

A U.S.-based bank is responsible for bulk of the buying over the last two days, according to fixed-income traders with knowledge of the matter, who asked not to be identified. The purchases, possibly for an institutional client, were spread largely over the 2021-2023 maturity bracket, they added. Overseas lenders were the biggest buyers of local government bonds on Wednesday, with net purchases of about 54 billion rupees ($826 million), data from the Clearing Corp. of India show. That marked an 11th straight day of net buying.

Modi’s majority win in Uttar Pradesh, India’s biggest state, is seen emboldening him to take more measures to spur expansion in Asia’s third-largest economy, which already boasts one of the fastest growth rates among the world’s major countries. Yields on local 10-year bonds are among the highest in the region and the rupee’s rally post the election results has made it Asia’s best-performing currency this month.

“The outcome of state elections, a dovish hike by the Federal Reserve and relatively attractive valuations have been the key drivers of inflows,” said Nagaraj Kulkarni, a senior rates strategist at Standard Chartered Plc in Singapore.

  • Overseas holdings of rupee-denominated government and corporate debt climbed by 44.5b rupees Wednesday, after rising by 41.8b rupees Tuesday: NSDL data
  • Yield on 6.97% government bonds due September 2026, current 10-year benchmark, drops 2bps to 6.79%, set for lowest close in three weeks
    • Yield has fallen 11bps over past three days
  • Yield on 7.68% notes due December 2023 down 4bps to 6.93%; U.S.-based bank was a major buyer of this security Wednesday: traders
    • READ: Foreign Banks Flock to Bonds Just as Locals Flee: Chart
  • Rupee gains 0.1% to 65.40 per dollar, taking advance for this month to 2%
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