India Bonds Surge for Sixth Consecutive Week Amid Sturdy Foreign Investment Inflows
Indian government bonds concluded the week largely stable, marking a noteworthy six weeks of consecutive gains. The benchmark 6.94% 2036 bond yield settled at 6.7108%, a slight decrease from Thursday’s 6.7180%. This trend reflects strong foreign investor interest, particularly amid heightened speculation regarding the potential inclusion of Indian bonds in a prestigious global debt index. Over the week, the 10-year bond yield experienced a decline of 6 basis points, cumulatively dropping approximately 27 basis points since the beginning of last month, a shift predominantly influenced by favorable foreign capital inflows and moderate crude oil prices.
Foreign investors displayed robust purchasing behavior, net buying over 66 billion rupees (around $693 million) in the initial four days of the week. Their cumulative acquisitions over the past six weeks have reached approximately 368 billion rupees, underscoring a significant preference for the most liquid bonds, particularly the benchmark 10-year bond. Currently, foreign entities hold about 105 billion rupees of this benchmark note, representing 15.4% of their overall holdings. This growing appetite can be partly attributed to recent initiatives by Indian policymakers aimed at bolstering the local currency and attracting overseas investments in anticipation of future index inclusions.
Moreover, the Indian banking sector is also gearing up for increased international engagement, as evidenced by ICICI Bank’s announcement of its first benchmark dollar bond sale since 2017, targeting a minimum raise of $500 million. This move is strategically timed following the Reserve Bank of India’s introduction of a concessional foreign exchange swap facility, which is expected to enhance the liquidity and appeal of Indian bonds in global markets.
In the swaps market, India’s overnight index swap rates remained relatively stable after a significant decline earlier in June. The one-year swap rate decreased marginally to 5.7775%, while the two-year rate fell by 1.75 basis points to 5.91%. The five-year swap rate also saw a reduction of 2 basis points, concluding at 6.18. This consolidation reflects market participants’ reassessment of interest rate expectations as they closely monitor domestic and external economic conditions, particularly surrounding inflation and fiscal policy developments.
Source: The Economic Times
(Expert Note: This report was prepared by the Wealthova team.)