Foreign investors increased their purchases of Indian government bonds by 46 times last week, signaling growing market confidence following aggressive currency interventions by the Reserve Bank of India (RBI). According to Clearing Corporation of India Ltd data, global funds acquired ₹5,551 crore (approximately $631 million) in bonds accessible to foreigners, a sharp rise from the ₹121 crore recorded in the previous week. The rupee gained nearly 1% last Wednesday as the RBI actively defended the currency against speculative attacks, revealing its intention to continue interventions to stabilize the rupee.
This intervention has not only strengthened the rupee from near-historic lows but has also enhanced the returns on Indian bonds, which are on track to outperform their emerging market counterparts for a second consecutive month. Currently, the 10-year bond yield stands around 6.5%, positioning India among the highest yield markets in the region.
“Given the relatively high yield levels offered by onshore rupee bonds, a steady or even appreciating rupee is certainly very positive news,” stated Yifei Ding, a senior portfolio manager for fixed income at Invesco Hong Kong Ltd. Ding emphasized that a robust rupee is expected to draw more investors to Indian government debt, providing opportunities to benefit from the high carry associated with these assets.
The rupee experienced its most significant gain in four months during the five days leading to Friday, benefiting from the RBI’s intervention in both offshore and onshore markets. This development has reduced the rupee’s year-to-date losses against the dollar to 2.6%, although it remains the worst-performing Asian currency after the Indonesian rupiah.
Rupee-denominated bonds have returned 1.9% to investors in October, compared with a mere 0.2% for a broader Bloomberg index of local emerging-market debt. The combination of potential currency gains and relatively high yields continues to attract investors.
While earlier pressures from U.S. tariffs and steady interest rates had pushed yields higher, easing inflation and the likelihood of monetary easing now provide new support for Indian debt. Yields on the benchmark 10-year bond have eased by seven basis points this month after rising by 25 basis points in the previous quarter.
“Recent rupee-negative factors are sufficiently priced in, so we welcome very much the actions of the RBI,” remarked Carl Vermassen, a portfolio manager at Vontobel Asset Management AG, which prominently features India in its sustainable emerging markets local currency bond fund. He noted that the inexpensive currency, adequate real rates, and the unique position of the Indian market favor assets like sovereign bonds.
Nevertheless, sentiment may shift if the rupee weakens again due to renewed trade tensions. Any reduction in support from the central bank could dampen the recent optimism.
Kenneth Akintewe, head of Asian sovereign debt at Aberdeen Investments, noted, “If there are positive developments on the trade front, the rupee could trade much better than it has in recent months.” He believes the rupee could achieve a more competitive position against other regional currencies, making it attractive along with the returns from the underlying bonds, thus warranting an overweight position in India.
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Published on October 23, 2025.
