Foreign banks have purchased more than $16 billion in Indian bonds this year, breaking the previous record set in 2023 in only seven months, according to official statistics. The Indian banking system’s liquidity surplus reached a nearly one-year high this month, driving up demand for bonds.
Foreign investors’ continuous buying has reduced the burden on domestic banks to absorb the bond supply. Foreign banks and portfolio investors prioritise short-term bonds, resulting in lower rates and a steeper yield curve.
According to CCIL data, foreign banks have purchased bonds worth 1.37 trillion rupees ($16.37 billion) thus far in 2024, accounting for roughly 20% of the year’s total supply. This amount exceeds the 1.22 trillion rupees purchased in all of 2023. In July, the 10-year bond yield fell by 9 basis points (bps), while the five-year yield dropped by 16 bps.
Barclays’ Siddharth Bachhawat indicated confidence in additional yield decreases due to solid macroeconomic drivers and international interest. Akshay Kumar of BNP Paribas noted a preference for shorter-term bonds. DBS forecasts the 10-year yield to fall to 6.75% by October, while Citi predicts 6.70% by March. ICBC’s Alok Sharma predicts that short-term yields may fall by much to 25 basis points.
