Cheaper Hedges for Rupee Send Global Funds on Bond-Buying Spree
A decline in volatility and optimism that the U.S. and China will sign an initial trade pact have boosted emerging-markets assets.
(Bloomberg) -- Global funds are on the longest-buying streak of Indian sovereign bonds this year as a stronger rupee and a drop in currency-hedging costs boost demand.
They bought 120 billion rupees ($1.7 billion) of debt in the past eight trading days, data compiled by Bloomberg show. The purchases have been concentrated mostly in shorter-tenure bonds, traders say.
“The foreign interest largely seems to be in the short-end segment in 2022-25 maturities,” said Shailendra Jhingan, chief executive at ICICI Securities Primary Dealership Ltd. in Mumbai. “This could be driven by the currency view.”
A decline in volatility and optimism that the U.S. and China will sign an initial trade pact have boosted emerging-markets assets. Onshore hedging costs, gauged by the rupee’s three-month forward-implied yields, dropped to 3.6% from as high as 4.5% in September.
The rupee has risen 2% against the dollar since a Sept. 3. trough, and closed at 70.99 on Wednesday.
Scotiabank said it will advance from current levels toward 70 versus the greenback, while Citigroup also recommends going long on the currency given a turnaround in appetite for risk assets.
Global funds are barred from holding more than 30% of the outstanding stock of any Indian bonds. Data from Clearing Corp. of India show that their highest holdings are mostly in sovereign debt maturing in 2023 and 2024.
Top holdings:
| Security | Total Outstanding (INR billion) | Percentage Holding |
|---|---|---|
| 7.37% 2023 | 399.9 | 18.3 |
| 8.83% 2023 | 830 | 16.1 |
| 7.17% 2028 | 1131.5 | 12.7 |
| 7.32% 2024 | 870 | 12 |
| 7.68% 2023 | 881.3 | 12 |
Source: CCIL
To contact the reporter on this story: Subhadip Sircar in Mumbai at ssircar3@bloomberg.net
To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Anto Antony
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