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India-US spread to attract bond buyers

MUMBAI: With benchmark local debt yielding about 5 percentag..

MUMBAI: With benchmark local debt yielding about 5 percentage points more than comparative US bonds, India should continue to draw global investors despite the countrys capital costs exceeding those of other competing emerging economies such as Indonesia, Russia, South Korea, or Mexico.
Since the first week of April, Indian yields have climbed 70 basis points to 7.85%. During the period, US Treasury yields shot up to as high as 3.12%, but have since cooled to 2.91%. The sudden increase in Indian yields may have prompted the recent exits of overseas cash from India, but the fat spread should act as sufficient incentive for global funds to return.

An ET analysis shows, for instance, that Brazil and Turkey are offering more than 10%. However, the inherent strengths of India, the worlds fastest expanding major economy, should tilt the scales in its favour, provided the USD-INR exchange rate remains stable.

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