(Bloomberg) — India’s index-eligible bonds experience monthly outflows for the first time since April as foreigners exit swap trades used to gain exposure to India’s $1.3 trillion government bond market. facing.
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Global funds are net sellers of emerging market bonds, due in part to rising U.S. bond yields. Some of the outflows from Indian bonds are related to the unwinding of total return swap trades related to government debt, Morgan Stanley and Gama Asset Management said.
Total return swaps have become one of the key products that allow foreigners to gain exposure to India without having to open a domestic account or deal with investment rules. These products, offered by banks such as Standard Chartered and HSBC Holdings, have grown in popularity since the announcement of India’s inclusion in global bond indexes.
Rajeev de Mello, chief investment officer at Gama Asset Management, said, “The inclusion of Indian government bonds in global emerging market indices strengthens the ties between global markets and our market, which will be a defining feature of the future.” Deaf,” he said.
About 40 billion rupees ($476 million) had flown out of India’s so-called fully accessible root bonds, a special type of bonds freely available to foreigners, through October. This is in stark contrast to the more than $2 billion inflows each month since the country’s debt was added to the JPMorgan Chase Emerging Markets Debt Index in June.
Morgan Stanley strategists Nimish Prabun and Ming Dai said in a note that easing expectations for Federal Reserve rate cuts, reallocation to Chinese markets and the unwinding of some total return swaps will help boost capital He said that this contributes to suppressing the flow of water.
India’s central bank’s reluctance to follow the lead of global financial authorities in cutting interest rates also makes the country’s debt less attractive.
Kaushik Rudra, global head of fixed income research at Standard Chartered, said “a reduction in U.S. rate cuts will have implications for central banks in Asia” as it limits the number and timing of rate cuts in the region. Ta. “India’s FAR bonds are more resilient than other bonds, but they are not immune to this movement.”
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