India’s stable fiscal outlook and steep yield curve make long-term bonds attractive, said Norbert Ling, head of fixed income portfolio management for Asia Pacific.
”The yield curve remains reasonably steep, offering more attractive carry and roll-down opportunities versus the front end,” he told Reuters via email.
Invesco manages $2.45 trillion in assets globally.
India’s benchmark 10-year government bond yield is around 6.87%, compared with about 6.49% for the five-year bond. Bonds maturing in 30 years or more yield about 7.45%-7.55%.
Foreign investors have bought nearly $7 billion of Indian debt since the start of June, mostly securities under the Fully Accessible Route (FAR), which has no foreign investment limits.
Ling said Invesco has become more positive on Indian debt over the medium term but remains selective. He said Indian bonds offer better value than those of Asian peers.
”We would favour selective exposure rather than a broad-based increase across the curve.”
INDEX INCLUSION
Ling expects Indian government bonds to eventually secure inclusion in Bloomberg’s global aggregate bond index, viewing the recent deferral as a temporary setback.
”Recent reforms have materially reduced barriers for foreign investors and brought India closer to the standards required for inclusion in the Bloomberg Global Aggregate Index.”
On July 31, Bloomberg delayed adding Indian bonds to its flagship Global Aggregate Index, saying recent market changes needed more time to take hold.
The decision came despite India scrapping withholding and capital gains taxes for foreign investors, expanding the pool of FAR-eligible bonds and taking steps to attract dollar inflows.
Ling said the remaining gap appears to relate more to the consistent application of reforms in day-to-day market functioning and eventual inclusion could materially diversify India’s foreign investor base.
”Any future index-related inflows are likely to be concentrated in liquid benchmark bonds and longer-duration segments, which could provide additional support,” he said.
He also expects recent foreign inflows to prove more durable, as they are being driven by structural market reforms and the prospect of index-linked allocations, rather than purely tactical trades.
