Bonds Surge in India as Rupee Rally Spurs Bets of More Inflows

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  • Currency climbs to the strongest level since October 2015
  • Foreign holdings of debt jumped 135.7 billion rupees last week

Indian sovereign bonds climbed, pushing the benchmark 10-year yield down by the most since November, on speculation a stronger currency will lure more foreign inflows into the nation’s debt market.

The rupee rallied Monday, after capping a fifth straight weekly advance on Friday that was the longest stretch of such wins since October 2012. Overseas holdings of local-currency government and corporate notes jumped by 135.7 billion rupees ($2.1 billion) last week, the most since October 2015, data from the National Securities Depository Ltd. show.

“The presence of foreigners is mainly guiding the moves in the bond market,” said Ajay Manglunia, Mumbai-based head of fixed income at Edelweiss Financial Services Ltd. “Foreign investors are quite bullish on bonds given the attractive yield and the rupee’s appreciation.”

Read: Templeton Said to Purchase About $1.2 Billion of India Bonds

Bond yields slipped across Asia on Monday, with regional currencies advancing, after U.S. President Donald Trump’s failure to pass his health-care bill cast doubts on his ability to push through other fiscal and tax plans.

  • Yield on India’s 6.97% government notes maturing in Sept. 2026 slumps 12bps, most since Nov. 21, to 6.71%; that’s the lowest close since Feb. 7
    • “Real rates are high as the inflation outlook is still fairly benign, which is helping bonds,” says Sandeep Bagla, associate director at Trust Capital Services in Mumbai
    • “Easy liquidity” and a strong rupee are also beneficial
  • INR rises 0.6% to 65.0450/dollar; touched 65.0325 earlier, strongest since Oct. 28, 2015
  • Global funds have poured a net $3.2b into Indian stocks so far this month, driven also by PM Narendra Modi’s majority win in key state elections; foreign investors’ debt holdings have risen by 193.3b rupees in March