Mumbai: On Thursday, foreign banks purchased Indian government bonds valued at 80.38 billion rupees ($962.2 million), marking the largest single-session purchase since February 1, according to data from the Clearing Corp of India. This surge in buying was influenced by a softer-than-expected U.S. inflation report, which increased expectations for rate cuts, as well as India's impending inclusion in JPMorgan's emerging market debt index, traders indicated.
Recent U.S. economic data has pointed to cooling inflation, further fueling expectations of rate cuts. This trend has prompted several large foreign banks to increase their bond holdings, a trader from a foreign bank noted. The trader requested anonymity as they were not authorized to speak to the media, and Reuters could not verify which specific banks made the purchases.
Traders reported that most of the buying focused on bonds with maturities of 10 years and above, including the 10-year benchmark 7.10% 2034 bond and the liquid 7.23% 2039 bond, among others. Notably, the 2039 bond is not currently part of the group set to be included in the JPMorgan index.
This recent activity follows an uptick in government bond purchases by foreign investors in longer-duration securities. Brokerage DBS maintains its prediction that the Federal Reserve will reduce rates by 50 basis points in 2024, with futures markets also pricing in similar reductions before the end of the year.
In India, sentiment remains positive as the country approaches its index inclusion on June 28. Investors are anticipating around $20 billion to $25 billion in passive inflows following the inclusion of these bonds.
India is seen as a favorable investment compared to other emerging markets, with a declining federal government fiscal deficit viewed as a positive indicator, according to Adarsh Sinha, co-head of Asia FX & rates strategy at Bank of America. Sinha expects some capital outflows from Malaysia and Thailand, which may receive lower weightage in the JPMorgan index, while inflows into India are anticipated to increase further.
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