Foreign banks are snapping up short-term Indian bonds, Bank of America says
Global banks are targeting shorter maturities in their purchases of India’s sovereign bonds, tapping improved liquidity amid limited supply, according to Bank of America Corp.’s head of India fixed income.
Foreign banks bought nearly 600 billion rupees ($7.2 billion) in all maturities since the start of June even as state-run banks and mutual funds sold, according to Clearing Corp. of India data. CCIL doesn’t break down the data by maturity.
Investors’ eagerness for short-term bonds are driven by lower supply of treasury bills, coupled with banking liquidity improvement that was largely triggered by higher government spending and large sizes of bonds that matured, Vikas Jain, Bank of America’s head of India fixed income, currencies and commodities trading, said in an interview.
The preference for shorter-dated notes underscores their common tactic of managing balance sheets using such instruments. It also points to the fast-moving gyrations in the nation’s fixed-income market following JPMorgan Chase & Co.’s inclusion of Indian sovereign bonds last month to its emerging-market index.
The JPMorgan index inclusion has also raised demand for bonds. “Foreign banks have also seen increased demand for government securities from foreign portfolio investors, and hence they have increased their inventory to meet this demand,” he said.
Indian authorities surprised the markets by cutting sales of treasury bills, with maturities up to a year, by 600 billion rupees in the last quarter. That drove yields on the three-year
