Fed and RBI give cheer, but bond investors still face some challenges

India’s bond market saw a pleasant change in tidings in August, the first month of net foreign investment inflow after a gap of seven months, which might continue in September too.
Foreign investors bought $1.79 billion worth of Indian bonds in August and another $400 million so far in September. Recall that in calendar 2020, more than $8.9 billion had flowed out of bonds. In the January-July period, the inflows were a mere $450 million. As a result of inflows from August onwards, the 10-year government bond yield dropped roughly 10 basis points in a week’s time. Traders believe that the inflows have been into structured corporate bonds or green bonds, currently favoured by foreign investors.
Foreign investors hold only 37% of the ₹2.43 trillion government bonds they can hold as per rules.
Jayesh Mehta, head of treasury at Bank of America, believes that the comments from US Federal Reserve chairman Jerome Powell in his Jackson Hole speech have struck a chord here in addition to the Reserve Bank of India (RBI) governor’s similar dovish comments as well. “Plus, we have seen a favourable trend in the currency market too,” he said.
Fed chief Powell indicated that dollars would remain copious in global markets and emerging economies won’t have to fight for a depleting stock of foreign investment.

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