Never miss a great news story!
Get instant notifications from Economic Times
AllowNot now


You can switch off notifications anytime using browser settings.
11,808.05-32.4
Stock Analysis, IPO, Mutual Funds, Bonds & More

What prompts India buying more US Treasuries

Since April 23, the US benchmark Treasury yield has fallen about 100 basis points, pushing prices up.

, ET Bureau|
Aug 22, 2019, 10.20 PM IST
0Comments
Getty Images
US-Dollar-getty
RBI has bought close to $ 2 million troy ounce worth gold since November 2017.
India's central bank is buying more US Treasuries of late in a reversal of its earlier strategy, using its reserves of foreign exchange to enhance the stock of the world's most liquid sovereign bonds.

Between February and June this year, Mint Street net invested $18.4 billion in US Treasury papers.

“US treasuries are an obvious portfolio choice, given that in the universe of investible and highly liquid sovereign bonds, they offer the best yield currently,” said Gaurav Kapur, chief economist at IndusInd Bank. “The stock of top rated government securities trading at negative yield is increasing rapidly.”

In June, Mint Road invested $5.8 billion in US Treasury securities, with India’s investment hitting a record high at $162.7 billion, Bloomberg data showed.

“The RBI’s decision to increase its holdings of US Treasuries in June is also driven by the need to optimize on the return on its growing foreign currency assets,” Kapur said.

With US treasury yields falling substantially in August, the RBI's bets on US bonds may lead to decent gains. “Among the multiple reasons for RBI to invest in US Government bonds might be an expectation of Fed rate cuts, leading to valuation and realised gains" said Saugata Bhattacharya, chief economist Axis Bank." Also, its gold purchase, in line with many other central banks, might be a hedge against this drop in yields, as a safe haven asset in the event of financial market volatility, and generally to improve risk adjusted returns.”

The Reserve Bank has also been buying gold from the open market over the last 18-19 months. It has bought close to $ 2 million troy ounce worth gold since November 2017.

Since April 23, the US benchmark Treasury yield has fallen about 100 basis points, pushing prices up.

Globally, government bonds worth $16 trillion were trading in negative yields, meaning that investors have to pay for the privilege of owning sovereign debt. Germany, Japan, the Netherlands and Sweden are among those countries yielding negative interest rates.

Germany failed to meet its 2-billion euro target ($2.2 billion) for the auction of notes maturing in next 30 years.

“Although we may talk of a 'new world order', there is no real challenge to the US Dollar as the reserve currency at this point of time,” said Joydeep Sen, consultant with PhillipCapital India at the fixed income desk. "Yields on US Treasuries have eased, but with USD 16 trillion of government bonds globally sitting in negative yields, this is at least giving positive returns."

Between January 4 and July 5, India’s forex reserves increased more than 8% to $400.8 billion, show data from RBI.

India is now the 13th largest investor in US Treasuries, ahead of South Korea, Germany, France, Thailand, Mexico, and Singapore.

Also Read

US treasury secretary asks India to build steady tax regime

US treasury secretary to hold talks in India as pressure builds on Iran

US treasury exploring 50-yr bond for first time

US Treasury yield curve flattens after Fed cuts rates

Comments
Add Your Comments
Commenting feature is disabled in your country/region.
Download The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.

Other useful Links


Follow us on


Download et app


Copyright © 2019 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service