Foreign inflows steady Indian yields as investors seek opportunity in Asia's standout fixed income market
Indian government bonds are drawing global funds at the fastest pace in seven months, as their relatively high yields and expectations of interest-rate cuts set them apart in Asia’s fixed income landscape.
In October, accoridng to Bloomberg, foreign investors acquired US$1.5bn of index-eligible sovereign notes—the largest monthly inflow since March, according to the Clearing Corp. of India Ltd.
“Indian bonds stand out as particularly attractive within Asia,” said Rajeev De Mello, global macro portfolio manager at Gama Asset Management.
He emphasized that Indian yields remain higher than those in Indonesia and most other East Asian markets, offering a compelling carry advantage for yield-seeking investors.
The Reserve Bank of India recently kept interest rates unchanged.
Governor Sanjay Malhotra noted that while growth remains below aspirations, subdued inflation provides policy space to support the economy.
This environment has led to expectations of monetary easing, which, according to Ashhish Vaidya, head of treasury at DBS Bank Ltd. in Mumbai, will sustain the favourable overseas momentum in Indian bonds.
According to Bloomberg, Bond inflows are occurring alongside approximately US$2.4bn in foreign buying of local equities this month, buoyed by optimism over a potential US-India trade deal.
These capital movements have contributed to the rupee’s strong performance in October, before it pared gains this week due to a stronger US dollar.
The influx of foreign capital has helped steady Indian bond yields, offsetting softer demand from long-term domestic buyers such as insurance companies and pension funds.
This support has also helped anchor borrowing costs for the broader economy, which is contending with the highest US tariffs in Asia.
The benchmark 10-year government bond yield held steady at around 6.58 percent in October, while the rupee traded little changed at 88.7350 on Friday.
With some investors neutral to slightly underweight on India, foreign funds are flowing in, said Nagaraj Kulkarni, co-head of Asia rates (ex-China) at Standard Chartered Plc in Singapore.
He predicts the 10-year yield will ease to 6.4 percent by the end of December.
