Foreign portfolio investors (FPIs) turned into net buyers of bonds in August after a hiatus of six months as the RBI aims for a positive real interest rate amid slowing inflation in the US, Economic times reported.
Indian benchmark paper yielded 7.27% Thursday, ranking 14th in a pack of 15 countries in the Asia-Pacific region, shows Bloomberg data. Pakistan, plagued with economic woes, is yielding 12.84% and is not technically comparable with India. The report said Pakistan has total foreign exchange reserves of about $15 billion versus India's $574 billion.
In August, FPIs turned into net buyers of local debt securities for the first time since January when they invested a net $698 million, show data from NSDL, a depository. Overseas investors have invested a net $200 million so far this month.
Consumer prices in the US rose 8.5% in July versus 9.1% a month earlier. This has convinced investors that the US Federal Reserve will not go in for aggressive rate hikes. The cost of living has hit a 41-year record high in the US.
On the other hand, Indonesian benchmark paper yielded 6.96%, followed by Malaysia's 3.92%.
Since August 4, a day before the RBI's bi-monthly policy, the benchmark bond yield has surged as much as 19 basis points.
One of the real rate definitions points to a differential between the central bank's repo rate at 5.40% and July retail inflation at 7.01%, which is expected to ease well below the 7% level.
India's sovereign credit perception risk decreased following the rupee's recovery after hitting its lifetime low and a drop in oil prices, enhancing the likelihood of overseas betting on domestic debt.
India's five-year credit default swap (CDS), a gauge for investment risk, has dropped about 21% to 126.65 since July 21, show Bloomberg data.
WTI crude futures were trading near $94 per barrel on Friday. Brent crude was at $99 a barrel. Low crude oil prices will reduce India's inflation and also lower pressure on the current account deficit, given that India imports more than 80 per cent of its crude oil needs.
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