Foreign buying continued to support the market, with overseas investors purchasing a net 15 billion rupees of bonds on Thursday. Their purchases have reached nearly $4 billion since early June after recent policy measures boosted expectations of India's inclusion in Bloomberg's Global Aggregate Index.
Indian government bonds saw early gains on Friday, influenced by U.S. Treasury movements and reduced oil prices. Foreign investors continued their strong bond purchases, reaching nearly four billion dollars since early June. This sustained buying has supported the market and kept dips shallow for Indian debt. Lower oil prices benefit India by easing inflation and current account pressures. Traders await a significant debt sale today for further market direction.
The benchmark 6.94% 2036 bond yield slipped 2 basis points to 6.7348% by 11:10 a.m. IST. It was still set to end the week higher and snap six straight weekly declines. Bond yields move inversely to prices. The yield has swung between 6.68% and 6.77% this week, with bulls taking control over the past two sessions.
Brent crude fell more than 2% to about $76 a barrel from near $80. The 10-year U.S. Treasury yield closed about 3 basis points lower overnight, before edging up in Asian trading. Lower oil is a direct positive for India, the world's third-largest oil importer and consumer, as it eases pressure on inflation, the current account and the rupee.
Falling Treasury yields also helps preserve the risk premium that Indian debt offers and foreign investors seek in emerging-market debt.
New Delhi will raise 320 billion rupees ($3.36 billion) through the sale of liquid five-year debt and a longer-duration 40-year bond.
India's overnight index swap rates fell sharply as softer oil and a stable rupee strengthened the case for a better inflation path and trimmed rate-hike expectations. The one-year OIS fell 3 bps to 5.78%, the two-year also dropped 3 bps to 5.93%, and the five-year eased 2 bps to 6.19%.
Background
The recent surge in foreign investment in Indian bonds is largely driven by expectations of India's inclusion in Bloomberg's Global Aggregate Index, which would increase the country's visibility and attractiveness to international investors. This comes at a time when global markets are closely watching U.S. Treasury yields and oil prices, both of which have significant implications for emerging markets like India.
As traders keep an eye on the upcoming debt sale, the continued foreign interest in Indian bonds and the impact of global oil and Treasury trends will be crucial in determining market directions in the coming weeks.
