Wednesday 19 June 2013

Chart: FIIs sold bonds worth Rs 27000 cr since May 22

Riken Mehta
moneycontrol.com


Bond market has witnessed an unprecedented sell-off by foreign institutional investors over the last one month. That is because the weakness in the rupee, and a simultaneous rise in bond yields of US government bonds has made it profitable to sell Indian debt and buy US debt.

FIIs have sold debt instruments worth Rs 27145 crore since 22 May, as per Sebi data. In the same period, the rupee has shed over 7 percent, hitting a fresh all-time low of 59.91 on Thursday.

Currently, yields on 10-year US treasury note is around 2.4 percent, while it is around 7.3 percent for Indian 10-year benchmark yield.

"However, when FIIs take an exposure in Indian bonds, they have to hedge it against exchange rate risk, which comes to around 6 percent. So, the effective return for FIIs comes to 1.3 percent (7.3 percent minus 6 percent) as of now in Indian bonds, in comparison to 2.4 percent offered in US 10-year treasury note," SBI deputy managing director and group executive for global markets P Pradeep Kumar told PTI.

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