MUMBAI: Indian government bonds rallied on Wednesday amid speculation that foreign portfolio investors were active buyers, especially in 5-8 year debt, suggesting an improvement in the global risk appetite and a positive outlook on local bonds.
All eyes are now on the minutes from the last US Federal Reserve policy meeting, due to be released later in the day. On Friday, Fed chief Janet Yellen will address an annual gathering of policymakers in Jackson Hole, Wyoming, on Friday.
Any signal that a rate hike from the Fed may not come anytime soon would revive risk appetite for emerging market assets after geopolitical tensions over Ukraine and Iraq hit foreign fund flows.
"There was constant talk that foreign investors have been buying actively in the market," said Ketan Parikh, head of research at Derivium Capital, a debt brokerage in Mumbai.
The 8.40 percent 10-year bond yield, which became the benchmark this week, fell by 5 basis points to end at 8.48 percent.
Traders said banks were seen actively buying securities for their foreign clients, especially for bonds due in 2020 , 2019 , and 2022.
This sent overall volumes soaring, with more than 600.70 billion rupees (9.91 billion US dollar) worth of bonds changing hands on Wednesday, data from the Clearing Corp of India showed.
The number was much higher than the recent daily average.
Foreign portfolio investors have net bought around $484.34 million in shares and net sold $421.97 million of debt in August so far, as per official data.
In the overnight indexed swap market, the benchmark 5-year swap rate closed unchanged at 8.04 percent. The one-year rate ended 1 bp higher at 8.46 percent.
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