indian bonds: Hot streak of foreign buyers for Indian bonds faces CPI hurdle


The longest streak of foreign inflows to Indian bonds in five years faces a key test Monday, with local inflation data expected to show signs of cooling price pressure.

Global funds have poured a cumulative $465 million into Indian bonds over 13 straight days, the longest stretch since June 2017, on optimism that the US Federal Reserve and Reserve Bank of India may slow the pace of rate increases. Monday’s November retail inflation data will be closely watched to see if that view still holds.


“Pickup in foreign bond inflows into India is in line with what we are seeing for other EM bond markets” amid signs of a peak in Fed rates, said Duncan Tan, a currency and rates strategist at DBS Group Holdings Ltd. in Singapore. Looking toward 2023, India bonds could underperform because the RBI’s cycle of rate increases has more room to run amid signs of sticky inflation, he said.

The fresh inflation data comes after the RBI surprised markets last week with a hawkish signal that it will remain focused on battling prices, even as it hiked rates by 35 basis points, a step-down from three consecutive half-percentage point increases previously.

India’s bonds have raced ahead this quarter, with the 10-year benchmark yield down by 10 basis points, the largest decline since the second quarter of last year.



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