With RBI's push Rupee Sovereign Bonds to be among Asia's best performers

At a time when the country's inflation is rising, leaving no room for interest rates cut, the Rupee Sovereign Bonds are emerging as Asia's best performers in a month, a Bloomberg report said.

One of the reason could be, as stated by HSBC Holdings Plc, in April, at the beginning of the financial year, the Reserve Bank of India had infused Rs 900 billion via open-market bond and likely to purchase another Rs 900 billion via same route by the end of fiscal year. 

This is in line with now former Governor Raghuram Rajan and current Governor Urjit Patel's goal of "neutral systemic liquidity", meaning periods of cash shortages are balanced with surpluses, the report said.

The report quoted Suyash Choudhary, head of fixed income at IDFC Asset Management, saying, "There is a paradigm shift in the way that monetary policy is operating, as the central bank uses the liquidity tool over interest rates. The promise of bond purchases has provided the biggest shield to the market."

Further, as per the report, last week, the rupee sovereign bonds returned 1.5% in the past month even when the consumer-price gains breached the 6% upper bound of the central bank's target range. 

The report mentioned Citibank's prediction stating that more bond will gain as there are chances of inflation spike cooling by the end of FY17 and "global hunt for yield supporting demand for debt."

Mentioning Himanshu Malik, Strategist, HSBC, prediction, the report said that as per his prediction, the yield will decline by 6.5% by December 31, the same level which was seen in mid-2009.

Despite falling 64 basis points in 2016, India’s benchmark 10-year bond yield is still the highest among major Asian markets. The improving cash supply has also helped drive interbank costs and short-term money-market rates lower. 

During the August-end, former Governor, Raghuram Rajan had said that this drive is on back of "highly rated" companies to borrow from the commercial-paper market, as Indian banks are not willing to cut lending rates due to increasing bad loans. 

Lastly, quoting Ananth Narayan, Regional head of ASEAN & South Asia financial markets at Standard Chartered Plc, saying, "The RBI’s change of its stance on liquidity has brought about transmission of lower rates across market-traded instruments."