Foreign investors pivot to short India debt ahead of policy turn

By Dharamraj Dhutia

MUMBAI, June 4 (Reuters) - Overseas investors are opting for short-term Indian authorities bonds arsenic they find charismatic introduction points amid ‌expectations of the involvement rates rhythm turning, with the Iran warfare driving ‌inflation higher.

Bonds with maturities of little than 5 years made up implicit two-thirds of the ​top 10 notes overseas investors bought during March-May, higher than little than fractional of akin purchases successful January-February, clearing location information showed.

Overseas investors wide bought bonds worthy 221 cardinal rupees successful January-February, portion successful March, they sold a grounds 177 cardinal ‌rupees, earlier turning buyers successful ⁠April-May.

Indian authorities enslaved yields person risen implicit the past 3 months, with shorter duration yields - astir delicate to rates - spiking ⁠on ostentation concerns owed to the Iran war-linked vigor shock.

The 10-year benchmark enslaved output roseate 34 ground points from March to May, portion the five-year output roseate ​55 bps, ​with the dispersed dropping to an eight-month ​low of 15 bps.

Investors are ‌increasingly factoring a displacement toward tighter policy, said Krishna Bhimavarapu, APAC economist astatine State Street Investment Management. While the Reserve Bank of India is wide expected to clasp rates astatine the June meeting, the argumentation absorption is intelligibly shifting, helium said.

"In specified an environment, the beforehand extremity (of the output curve) offers much ‌attractive risk-adjusted transportation with little duration risk, portion ​the agelong extremity remains susceptible to further ​repricing if the tightening rhythm materialises."

The ​RBI complaint determination is owed connected Friday, with astir economists ‌expecting presumption quo, portion Standard Chartered ​Bank has called ​for a 25-bp hike.

"The curve has carnivore flattened with short-end yields rising much than the long-end yields. This has created a valuations-driven accidental for ​foreign investors to bargain ‌short-end bonds, Nagaraj Kulkarni, main rates strategist - South Asia & Indonesia and ​head - flows strategy astatine the overseas bank, said.

($1 = 95.7800 Indian rupees)

(Reporting ​by Dharamraj Dhutia; Editing by Harikrishnan Nair)