India's index-linked bonds see record foreign selling in May on profit-booking, currency swings
By Dharamraj Dhutia
MUMBAI (Reuters) -Foreign investors sold Indian government bonds included in global indexes for a second straight month in May, driven by profit-taking and currency volatility rather than a change in sentiment towards the country, several investors said.
Foreign investors offloaded 123.2 billion rupees ($1.44 billion) of Indian bonds under the Fully Accessible Route in May, the highest since its 2020 launch, after selling 111.4 billion rupees in April.
They have invested 1.20 trillion rupees in Indian bonds till March since June 2024, when Indian bonds were included in the JPMorgan emerging debt market index.
"The recent outflows are best viewed through the lens of profit-taking after a strong run, rather than a shift in fundamental conviction," said Rong Ren Goh, portfolio manager at Eastspring Investments, which manages $256 billion of assets.
Some headwinds, including geopolitical tensions and uncertainty over the new RBI governor's stance on FX policy, may have also led investors to trim exposure and rebalance portfolios, he added.
The Indian rupee has grown more volatile over the past six months since new RBI Governor Sanjay Malhotra took charge in December, with implied volatility averaging 4.26%, up from 2.24% during the final six months of former governor Shaktikanta Das's tenure.
A rise in U.S. Treasury yields due to fear of a wide budget gap and inflationary impact of President Donald Trump's tariff policies and a drop in Indian rate due to declining inflation have also narrowed the yield differential between the two markets.
The spread between Indian and U.S. bond yields have collapsed to 21-year low of around 170 bps now, from 250 bps early November.
"This (selling in Indian bonds) was not driven by skepticism towards India, but rather by shifts in global macro sentiment," Jean‑Charles Sambor, head of emerging markets debt at TT International Asset Management said, that manages $3.15 billion of assets across EM.
"We do not see this (outflows) as a game changer. Sentiment towards Indian bonds is likely to improve as inflation continues to decline and there is more fiscal space," Sambor said, adding he remains constructive on rupee bonds and believes appetite for local currency bonds is returning.
($1 = 85.3790 Indian rupees)
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
CNBC
5 hours ago
- CNBC
How regime change in Iran could affect global oil prices
Senior Israeli officials said this week that their military campaign against Iran could trigger the fall of the regime, an event that would have enormous implications for the global oil market. The oil market has reacted with remarkable restraint as Israel has bombed the third-largest crude producer in OPEC for eight straight days, with no clear sign the conflict will end anytime soon. Oil prices are up about 10% since Israel launched its attack on Iran a week ago, but with oil supplies so far undisturbed, both U.S. crude oil and the global benchmark Brent remain below $80 per barrel. Still, the risk of a supply disruption that triggers a big spike in prices is growing the longer the conflict rages on, according to energy analysts. President Donald Trump has threatened the life of Iran's supreme leader Ayatollah Ali Khamenei and is considering helping Israel destroy the Islamic Republic's nuclear program. For its part, Iran's leadership is more likely to target regional oil facilities if it feels its very existence is at stake, the analysts said. Israel's primary aim is to degrade Iran's nuclear program, said Scott Modell, CEO of the consulting firm Rapidan Energy Group. But Jerusalem also appears to have a secondary goal of damaging Iran's security establishment to such an extent that the country's domestic opposition can rise up against the regime, Modell said. "They're not calling it regime change from without, they're calling it regime change from within," said Modell, a former CIA officer and Iran expert who served in the Middle East. Prime Minister Benjamin Netanyahu denies that regime change is Israel's official goal, telling a public broadcaster on Thursday that domestic governance is an internal Iranian decision. But the prime minister ascknowledged Khamenei's regime could fall as a consequence of the conflict. Defense Minister Israel Katz on Friday ordered Israel's military to intensify strikes on Iran with a goal to "destabilize the regime" by attacking the "foundations of its power." Israel reportedly sought to kill Khamenei in the opening days of its campaign, but Trump vetoed the plan. There are no signs that the regime in Iran is on the verge of collapse, Modell said. But further political destabilization in Iran "could lead to significantly higher oil prices sustained over extended periods," said Natasha Kaneva, head of global commodities research at JPMorgan, in a note to clients this week. There have been eight cases of regime change in major oil producing countries since 1979, according to JPMorgan. Oil prices spiked 76% on average at their peak in the wake of these changes, before pulling back to stabilize at a price about 30% higher compared to pre-crisis levels, according to the bank. For example, oil prices nearly tripled from mid-1979 to mid-1980 after the Iranian revolution deposed the Shah and brought the Islamic Republic to power, according to JPMorgan. That triggered a worldwide economic recession. More recently, the revolution in Libya that overthrew Muammar Gaddafi jolted oil prices from $93 per barrel in January 2011 to $130 per barrel by April that year, according to JPMorgan. That price spike coincided with the European debt crisis and nearly caused a global recession, according to the bank. Regime change in Iran would have a much bigger impact on the global oil market than the 2011 revolution in Libya because Iran is far bigger producer, Modell said. "We would need to see some strong indicators that the state is coming to a halt, that regime change is starting to look real before the market would really start pricing in three plus million barrels a day going offline," Modell said. If the regime in Iran believes it is facing an existential crisis, it could use its stockpile of short-range missiles to target energy facilities in the region and oil tankers in the Persian Gulf, said Helima Croft, head of global commodity strategy at RBC Capital Markets. Tehran could also try to mine the Strait of Hormuz, the narrow body of water between Iran and Oman through which about 20% of the world's oil flows, Croft said. "We're already getting reports that Iran is jamming ship transponders very, very aggressively," Croft told CNBC's "Fast Money" on Wednesday. QatarEnergy and the Greek Shipping Ministry have already warned their vessels to avoid the strait as much as possible, Croft said. "These are not calm waters even though we have not had missiles flying in the straits," she said. Rapidan sees a 70% chance the U.S. will join Israeli airstrikes against Iran's nuclear facilities. Oil prices would probably rally $4 to $6 per barrel if Iran's key uranium enrichment facility at Fordow is hit, Modell said. Iran will likely respond in a limited fashion to ensure the regime's survival, he said. But there is also a 30% risk of Iran disrupting energy supplies by retaliating against infrastructure in the Gulf or vessels in the Strait of Hormuz, according to Rapidan. Oil prices could surge above $100 per barrel if Iran fully mobilizes to disrupt shipping in the strait, according to the firm. "They could disrupt, in our view, shipping through Hormuz by a lot longer than the market thinks," said Bob Bob McNally, Rapidan's founder and former energy advisor to President George W. Bush. Shipping could be interrupted for weeks or months, McNally said, rather than the oil market's view that the United States Fifth Fleet, based in Bahrain, would resolve the situation in hours or days. "It would not be a cakewalk," he said.
Yahoo
5 hours ago
- Yahoo
South Korea's chief trade negotiator plans US visit June 22-27
SEOUL (Reuters) -South Korea's trade minister Yeo Han-koo will visit the United States from June 22 to 27, the trade ministry said on Saturday. The visit will include discussions with U.S. Trade Representative Jamieson Greer and the third round of bilateral technical discussions, a ministry official told Reuters. Further details about the meetings were not disclosed. "Since a South Korea-U.S. summit has yet to take place and key ministers have not been appointed under the new administration, negotiations are likely to focus on areas that the trade ministry can manage - excluding major issues such as defense cost - sharing and exchange rates," Heo Yoon, an economics professor at Sogang University, said. "Given these circumstances, reaching a comprehensive agreement on key negotiation frameworks and agendas is expected to be challenging." South Korea, which is currently facing a 10% blanket tariff and a 25% country-specific duty temporarily paused for 90 days, agreed with the U.S. during initial trade negotiations in late April to craft a trade deal reducing tariffs by July 8. Asia's fourth-largest economy unexpectedly contracted in the first quarter amid U.S. President Donald Trump's sweeping tariffs and domestic political unrest following former President Yoon Suk Yeol's martial law decree in December.
Yahoo
5 hours ago
- Yahoo
Tech tycoon Lynch's doomed Bayesian yacht lifted to surface
PORTICELLO, Italy (Reuters) -Salvage experts lifted Mike Lynch's sunken superyacht to the surface and began pumping seawater out of it on Saturday, 10 months after it sank off the coast of Sicily, killing the British tech tycoon, his teenage daughter and five others. Work resumed at first light, with one of the most powerful maritime cranes in Europe having been used to haul the 56-metre-long (184-foot) Bayesian from beneath the waves. The upper decks appeared badly damaged while the blue hull was encrusted with mud. The Bayesian was moored off the small port of Porticello, near Palermo, in August last year when it sank during a sudden storm. The yacht was vulnerable to violent winds and was probably knocked over by gusts of more than 117 km (73 miles) per hour, an interim British report said last month. The vessel will be held in an elevated position over the weekend while checks and preparations are made, said TMC Marine, which has been leading the salvage operation, working with Dutch specialists Hebo Maritiemservice to lift the yacht 50 metres from the seabed over the past few days. It is then expected to be transported to the nearby port of Termini Imerese on Monday and handed over to the authorities who are investigating the sinking. The recovery process has been made easier after the vessel's 72-metre mast was detached using a remote-controlled cutting tool and placed on the seabed on Tuesday. In addition to Lynch, founder of the software company Autonomy, his daughter Hannah, lawyer Chris Morvillo and his wife Neda, banker Jonathan Bloomer and his wife Judy, and chef Recaldo Thomas were killed when the yacht sank. Nine other crew members and six guests were rescued.
