India to Issue $2.5bn of Rupee Bonds in New Year
Overseas investors get access to an additional
165 billion rupees ($2.5 billion) of sovereign and state-government notes from
Jan. 1, part of a September plan to phase in looser foreign-investment limits.
The currency is the best performer in emerging Asia this month, it
completed the longest run of daily gains since 2011 on Monday and expectations
for price swings are at the lowest since July.
India will be laying out the welcome mat to global bond funds
on day one of 2016. Given the rupee’s strength, it’s
perfect timing.
“The limits will be filled up instantly,” says banks. “India
is a relative safe haven among emerging markets.”
Barclays Plc says it is bullish on Indian government bonds
and the quota offering presents an opportunity to enter the market cheaply
given the ongoing holiday season. Appetite for developing-nation assets is
improving after the Federal Reserve laid out a gradual path of interest-rate
increases, with deposits into U.S. emerging-market exchange-traded funds
climbing at the fastest pace in two months last week.
Foreign holdings of Indian debt have dropped 115.2 billion
rupees over December and November, set for the biggest two-month outflow since
2013. They surged by 146.8 billion rupees in October, as global funds rushed to
buy after the first increase in limits under the September plan took effect.
There is thus appetite for more Indian money.
Rupee up: The rupee jumped
1.4 percent in the eight days through Dec. 28, the longest stretch of gains
since June 2011, with Edelweiss Financial Services Ltd. and RBL Bank Ltd.
predicting the increase in debt limits will spur more gains. The currency has
risen 0.3 percent in December to 66.46 a dollar, and its one-month implied
volatility, used to price options, slumped to 5.52 percent on Wednesday, the
lowest since July 24.
Investing in rupees will earn 2.5 percent including interest
by March 31, the most in Asia. The yield on India’s benchmark 10-year
sovereign bonds has fallen three basis points this month to 7.76 percent and
remains the highest in the region after Indonesia.
“We remain bullish on Indian government bonds,” Rohit Arora, an interest-rate strategist at Barclays
in Singapore, wrote in a Dec. 28 note. “With most markets closed on Jan. 1 and
given the ongoing holiday season, we expect a weak quota auction cutoff. Unexpectedly strong demand despite the unusual
timing, on the other hand, could be seen as a positive technical signal for
broader emerging-market local-currency bond flows in the near term.”
Global
holdings of Indian sovereign and corporate securities rose by 487 billion rupees
this year as tumbling crude oil prices improved public finances in Asia’s
third-largest economy and helped slow inflation, enabling the central bank to
lower benchmark interest rates four times.
Bond risk has plunged this quarter. Credit-default swaps
insuring the notes of State Bank of India, a proxy for the sovereign, against
non-payment for five years have dropped 24 basis points since Sept. 30, the
most in five quarters, to 159, according to data provider CMA. Ten-year notes
pay 548 basis points over similar-maturity U.S. Treasuries, compared with a
two-year low of 534 in June.