India bonds rise for sixth straight week as foreign flows continue
- Benchmark 6.94% 2036 bond yield ended at 6.7108%
MUMBAI: Indian government bonds ended little changed on Friday, at the end of a week that marked six straight weeks of gains, supported by unwavering foreign purchases on bets that Indian government bonds will be included in a global debt index.
The benchmark 6.94% 2036 bond yield ended at 6.7108%, after closing at 6.7180% on Thursday. Bond yields move inversely to prices.
The 10-year bond yield dropped 6 basis points in the week, bringing the aggregate fall since the start of last month to around 27 bps.
“The downward movement was driven by strong foreign investor inflows, softer crude oil prices, and growing expectations of India’s inclusion in a global index, which could attract substantial passive investments,” Tata Mutual Fund said in a note.
Foreign investors net bought bonds worth over 66 billion rupees ($693 million) in the first four days of the week, according to clearing house data. Traders said they remained on the bid side on Friday as well.
Foreign investors have accumulated bonds worth around 368 billion rupees in the last six weeks, with data for Friday yet to be added.
They have shown strong appetite for the five most liquid papers, especially the benchmark 10-year bond. They now hold 105 billion rupees of the benchmark note, meaning it accounts for 15.4% of their total holdings.
After a raft of measures to support the local currency and attract foreign inflows from Indian policy makers last month, overseas investors have turned bullish as they anticipate these notes will be included in the Bloomberg Global Aggregate Bond Index in its next review.
Oil prices eased on the day, providing further relief to investors, as India imports almost 90% of its crude requirements.
Rates
India’s overnight index swap rates largely consolidated this week, after nosediving for most of June.
The one-year swap rate eased slightly to 5.7775%, while the two-year swap rate fell 1.75 bps to 5.91%. The five-year rate settled 2 bps lower at 6.18%.