Currency-Hedging Cost for Rupee Sends Global Funds on Bond-Buying Spree

• Global funds are barred from holding more than 30% of the outstanding stock of any Indian bonds

• Onshore hedging costs, gauged by the rupee’s three-month forward-implied yields

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 US 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 is 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.

(Except for the headline, this story has not been edited by Scrabbl staff and is published from a syndicated feed.)