India bonds gain as RBI FX inflows lift liquidity, spur short-term debt buying

Business Recorder reported that Indian government bonds firmed in early trade on Thursday, with shorter-dated papers leading the gains. The rally followed foreign-currency inflows through special schemes that exceeded forecasts, easing rupee liquidity and improving sentiment toward Indian assets. The benchmark 6.94% 2036 bond yielded 6.9502% at 10:30 a.m. IST, compared with 6.9754% at Wednesday's close.

The five-year 2031 security, carrying a 6.36% coupon, fell in yield by 8 bps, reaching 6.48%. The country pulled in $136.38 billion through special schemes for raising foreign currency, a figure far above expectations, which bolsters its ability to back the rupee. Indian lenders supplied $127.23 billion of that sum through deposits held by non-residents in foreign currency, while external commercial borrowing and overseas loans made up the rest.

Traders expect most of the money to stay in the banking system over three to five years, which could lift interest in medium-dated paper, mainly from overseas banks with little retail lending. Liquidity surplus climbed to 9.7 trillion rupees ($102.76 billion) after many banks swapped dollar receipts with the central bank. Kotak Mahindra Bank argued that fears of aggressive sterilisation by the RBI look overstated and expects greater reliance on short-term tools, such as bill sales maturing in four to five months. Yet high oil prices and US Treasury yields kept longer-dated bonds under pressure, with Brent near $95 per barrel on supply worries.