Trump’s Return Sparks Heat on Indian Bonds as FIIs Exit at Record Pace

Indian bonds have started to feel the heat in global markets as Trump is all set to re-enter the White House. US Bond yields have already started to gain massive investor attention. This, in turn, is triggering a massive foreign investor outflow from Indian bonds.

As per a Bloomberg report, Indian bonds have been witnessing their fastest sell-off by foreign investors since June. Global funds pulled out a net 49.6 billion rupees ($588 million) from Fully Accessible Route bonds last week, according to data compiled by Clearing Corporation of India Ltd, cited in the report.

This is the largest weekly outflow since these domestic securities joined JPMorgan Chase and Co.’s emerging-market bond index in June.

US Treasury yields have surged sharply following Donald Trump’s election victory. And not many were surprised by this uptrend. This was largely because a large part of Trump's economic policy view inclines towards inflationary pressure. This means expectations around the Federal Reserve's easing cycle, interest rate cuts, might start to fade.

Rising Dollar

Meanwhile, as the dollar continues to rise, other emerging market currencies are facing the ripple effects of the problem.

"If Trump were to impose a 60 per cent tariff on China and other EMs, then that could make China devalue its currency. Obviously, there will be a ripple effect on other emerging markets like India as well. FIIs would not want to be invested in a depreciating currency," Amar Ambani, executive director, Yes Securities said.

"In Trump’s 1st term as President, when he imposed a 25 per cent tariff on half of Chinese goods that were imported by the US, the Yuan depreciated by 10 per cent. This time, his election promise of a 60 per cent tariff is a whole different level! This is the key monitorable," he further added.

While concerns about the 'Buy China, Sell India' FII sentiment have dominated discussions over the past two months, the bigger challenge for domestic markets may not come from the dragon economy but from the policy playbook of the US President-elect.