India revises limits for bonds
mumbai — India’s central bank raised limits for overseas bond investors that could lure $16 billion of new funds, the third policy move in 2 weeks to spur demand in the nation’s debt markets.
Foreign investors will be allowed to increase holdings by ₹1.04 trillion ($16 billion) for the fiscal year to March 2019, the Reserve Bank of India said in a statement on Friday. It raised the limits for sovereign debt by half a percentage point, while changing how much investors can own of corporate bonds to 9 per cent of outstanding notes from a fixed amount.
Prime Minister Narendra Modi’s administration is seeking to revive a sovereign debt market that had
We don’t see the increase in sovereign bond limits as a game changer Teresa John, economist at Nirmal Bang Equities
sold off for 7 months, with the higher yields threatening his borrowing plans. Having one road map for all of the nation’s debt markets will help the RBI better manage foreign inflows, though traders were expecting a higher limit for government notes.
“While marginally positive, we don’t see the increase in sovereign bond limits as a game changer,” said Teresa John, an economist at Nirmal Bang Equities Pvt Ltd. “Incremental inflows will be much lower this year given the global background of rising interest rates.” Foreign investors bought ₹1.4 trillion of bonds in 2017, the highest since 2014. While they still purchased ₹95.24 billion in January, they became net sellers in the last 2 months amid concern of an oversupply of debt and higher global yields.
The benchmark 10-year yield gained one basis points to 7.19 per cent on Monday. The bonds posted their best gain since November 2016 last week after the central bank lowered its inflation forecast. Average yields on top-rated 10-year corporate bonds declined 39 basis points to 7.78 per cent last week.
Overseas investors can boost holdings of sovereign debt to 5.5 per cent by March 2019, and 6 per cent a year later. The central bank also set 9 per cent as the limit for foreign investors to own in debt sold by Indian companies.