Why did foreign investors exit Indian bonds?

Foreign investors exited Indian bonds because the central bank's foreign exchange curbs increased the cost of hedging rupee exposure, creating a profitable exit opportunity.

What impact did India's forex curbs have on bond yields?

India's forex curbs led to a significant sell-off in bonds, pushing the benchmark 10-year bond yield to a two-year high of 7.15%.

When might investors return to the Indian bond market?

Investors are likely to return to the Indian bond market only after a significant rise in bond yields or a change in the interest rate outlook.

Home / Business and Economy / India Forex Curbs Spark Bond Sell-off, Yields Hit Two-Year Highs

India Forex Curbs Spark Bond Sell-off, Yields Hit Two-Year Highs

22 Apr

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Summary

Forex curbs led to foreign investors exiting Indian bonds.
Benchmark 10-year bond yields surged to a two-year high of 7.15%.
Hedging costs for rupee exposure overseas saw a significant increase.

India Forex Curbs Spark Bond Sell-off, Yields Hit Two-Year Highs

Foreign investors have exited India's government bond market following the central bank's foreign exchange curbs, resulting in borrowing costs reaching two-year highs. These measures, implemented between late March and early April to support a weakening rupee, led to a substantial jump in the cost of hedging rupee exposure abroad. This surge in hedging expenses provided an opportunity for existing investors to unwind their hedges profitably and withdraw from their Indian bond holdings. The outflow amounted to ₹222 billion ($2.37 billion) between March 1 and April 15, causing the benchmark 10-year bond yield to rise by nearly half a percentage point to 7.15%.