Shrinking yield gap slows FPI investments

FAR FROM PEAK

- ANUPREKSHA JAIN

FOREIGN PORTFOLIO INVESTORS' (FPIs) holdings of government bonds under the fully accessible route have declined, but they remained net buyers in February as the yield gap between US and domestic bonds narrowed.

When the interest rate differential between US and domestic yields narrows, FPIs usually exit emerging markets in favour of safe-haven assets. This trend has also put pressure on the rupee.