Indian Bond Market: Most Attractive Indian Bonds in APAC

Mumbai: India’s benchmark bond is the best-performing sovereign in the Asia-Pacific region, barring Pakistan, prompting investors to invest in local debt securities. Foreign portfolio investors (REITs) turned net buyers of bonds in August after a six-month hiatus as the RBI targets a positive real interest rate amid slowing US inflation.

India’s benchmark paper returned 7.27% on Thursday, ranking 14th in a group of 15 countries in the Asia-Pacific region, Bloomberg data shows. Economically struggling Pakistan yields 12.84% and is not technically comparable to India. Pakistan has total foreign exchange reserves of around $15 billion compared to India’s $574 billion.

“With US inflation falling, REITs should extend their straight line into India, but not aggressively until India’s real rate turns positive,” Madan Sabnavis said. , Chief Economist at

. “In the meantime, the fall in oil prices, if prolonged, will help reduce our trade deficit.”

“This in turn should strengthen India’s fundamentals by attracting foreign investors,” he said.

ET office

In August, REITs became net buyers of local debt securities for the first time since January, when they invested $698 million net, data from NSDL, a custodian, shows. Foreign investors have invested $200 million net so far this month. “A combination of factors will likely cause global investors to start allocating resources to Indian bonds again,” said Lakshmi Iyer, Chief Investment Officer, Debt, Kotak Mutual Fund. “While the RBI will continue to tighten rates, albeit at a perhaps slower pace, absolute yields now look attractive, with an evolving carry opportunity.” Consumer prices in the United States increased by 8.5% in July against 9.1% a month earlier. This has convinced investors that the US Federal Reserve will not embark on aggressive rate hikes. The cost of living had reached a 41-year high in the United States.

Indonesia’s benchmark paper returned 6.96%, followed by Malaysia’s at 3.92%.

“The exchange rate also appears to be stabilizing after hitting an all-time low,” Iyer said. The rupee weakened to a record high of 80.06 against the dollar on July 21. Since then, the one-month Bloomberg Volatility Index has fallen 12 basis points to 5.17%. During the same period, the gauge fell only three basis points for the dollar-renminbi pair. One basis point is 0.01 percentage point. “A slowdown in US price growth could reduce the Federal Reserve’s aggressive rate hikes,” said Kunal Sodhani, vice president, global trading center, Sinhan Bank. “We should see offshore flows into Indian debt securities as the rupiah erases losses from its all-time low.” The repo rate, at which banks borrow short-term funds, is now 5.40%. Between May 4 and August 5, the central bank raised the benchmark gauge by 140 basis points. The terminal rate, or peak of the current rate hike cycle, should be between 6 and 6.50%.

Since August 4, a day before the RBI’s fortnightly policy, the benchmark bond yield has jumped 19 basis points.

One of the definitions of real rates points to a differential between the central bank repo rate at 5.40% and July retail price inflation at 7.01%, which is expected to fall well below the 7 level. %.

India’s sovereign credit perception risk has declined following the rupiah’s recovery from an all-time low and falling oil prices, increasing the likelihood of betting overseas on domestic debt. India’s five-year credit default swap (CDS), an indicator of investment risk, has fallen about 21% to 126.65 since July 21, according to Bloomberg data.

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