Cheaper Hedges for Rupee Send Global Funds on Bond-Buying Spree
The portrait of Mahatma Gandhi is displayed on an Indian 50 rupee, left, and 2000 rupee banknotes in an arranged photograph in Thailand. (Photographer: Brent Lewin/Bloomberg)

Cheaper Hedges for Rupee Send Global Funds on Bond-Buying Spree

(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.”

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. 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:

SecurityTotal Outstanding (INR billion)Percentage Holding
7.37% 2023399.918.3
8.83% 202383016.1
7.17% 20281131.512.7
7.32% 202487012
7.68% 2023881.312

Source: CCIL

©2019 Bloomberg L.P.

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