DBS Economics & Strategy: Who will buy Indian Government Bonds?

Ms. Radhika Rao, India Economist, DBS Bank and Eugene Leow, Rates Strategist, DBS Bank

Key Highlights :

- After six months of underperformance, India's domestic bond markets rallied last week after the government lowered its borrowing plan for the first half of the fiscal year and trimmed overall issuance

- Heading into a year with a heavy supply pipeline (even if deferred to H2), we assess the evolving demand dynamics

- Deviation in the ownership pattern of government bonds in 2017 vs the previous 5Y average show that insurance companies and foreign investors were net buyers while banks and the RBI scaled back their holdings

- Into FY19, demand for the government papers is likely to be led by commercial banks and foreign investors. We expect strong foreign interests given India's high absolute yields and still low foreign ownership levels. Any increase in debt limits will be staggered and gradual

- The RBI will probably have to step in as a buyer of last resort if the private sector is not able to absorb new issuances

Source : Equity Bulls

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