Foreign holdings in Rupee treasuries continue to skyrocket; hit 2-year high

Secondary Bond market yields close down week on week; activity robust Money market liquidity increases

- By WEALTH Trust SECURITIES

FOREIGN holdings of rupee-denominated Government securities increased further last week, recording a net inflow of Rs. 10.36 billion during the week ending 31 October, the largest weekly inflow in 32 weeks.

This marks the fourth consecutive week of inflows. As a result, total foreign holdings rose to Rs. 141.82 billion by the end of the week, hitting the highest level in two years (since Mid-November 2023). This trend underscores a robust rebound in foreign investor appetite for domestic Treasury bills and bonds, up 259% from a low of Rs. 39.38 billion recorded in September 2024. This robust demand comes against the backdrop of the US Fed's monetary policy easing by 25 basis points and halt of quantitative easing.

The secondary Bond market last week initially started off slowly, with overall activity observed at moderate levels amid a restrained investor tone. Yields held broadly steady across the curve as the market continued to consolidate in the absence of strong directional signals.

However, on last Tuesday momentum shifted sharply following the release of the Ministry of Finance’s Fiscal Review for January-September 2025, which highlighted a significant fiscal outperformance relative to IMF benchmarks.

The report highlighted a 54.5% narrowing in the Budget deficit and a robust primary surplus of Rs. 1.46 trillion, well above program targets, on the back of stronger-than-expected revenue performance.

Complementing this, a Bloomberg report noting that inflation was likely to remain below target in the 4th quarter of 2025 further boosted sentiment. These developments spurred a rally, with renewed buying interest and a surge in transaction volumes leading to notable yield declines across the 2028-2030 maturities.

The bullish momentum extended into the midweek sessions as yields continued to drop, particularly on the 2032 and other longer-tenor bonds, reflecting sustained demand across the curve.