Global Funds Shift to Longer-Term Indian Bonds

by | May 15, 2024 | 0 comments

During the last week, the percentage of foreigners’ investments in long-term local bonds with 10 years or more maturity has increased to 17% while it was at 11% in September. On the other hand within the same period, Bloomberg’s numbers show that investments into short term obligations with a maximum lifespan of five years decreased by ten per cent down to 44%.

India’s long-term bonds are being bought by global investors in growing numbers, who hope that the Reserve Bank of India (RBI) will adopt a more supportive monetary policy. 11% of foreign investments were made in Indian bonds with maturities of ten years or more last week, a significant rise compared to September’s 17%. Meanwhile, Bloomberg data has indicated that over the same period the percentage of those invested in bonds maturing in five years or less has fallen from 54% to 44%.

The most popular bond duration is still between eleven and fifteen years. Jerome Tay, an investment manager at abrdn Plc Singapore, ascribes this to lower inflation and expectations that RBI will ease its tight monetary stance.

Read Also: Zomato Q4 Results Spark Target Price Hikes, 26% Upside

This shift comes at a critical time for the Indian markets with national elections coming up and inclusion of India’s bonds into JPMorgan’s key emerging market index in June which could attract up to $40bn investments according to Goldman Sachs.

Moreover, RBI is intending to achieve this with respect to longer-dated securities. However, we now look at interest rate cut dates projected by Bloomberg surveys which have been rescheduled but should start from October-December. This was after March inflation rates came close to RBI target of 4%, when it fell below 5 percent.

Before planned rate cuts occur some bond investors are preferring longer term maturities seeking potential returns. In fact, ten year or greater durations are more favoured by investors due to historical tightening moves by RBI which widened the gap between funding costs versus US dollar borrowing expenses as said Abhay Gupta from Bank of America Singapore.

These are all FAR eligible Indian Bonds for JPMorgan’s Index – meaning ‘Fully Accessible Route’ – under this route securities must have minimum remaining maturity (MRM) of 2.5 years and face value above USD1bn.

Further still, there is another angle through which international exposure can be added to Indian financial instruments with Bloomberg Index Services Ltd. incorporating India into its emerging markets index from January.


Submit a Comment

Your email address will not be published. Required fields are marked *

two × 5 =

Related Articles