India investment in US Treasuries rose 1yr high

India, which has joined Asian powerhouses China and Japan in stocking up on US Bills, raised its purchases of Treasuries to a 12-month high in April, indicating that Mint Road is using the swelling reserves of foreign exchange to buy the world’s most liquid financial asset.

Investments in US Treasuries were at $155.3 billion in April, compared with $157 billion in March a year ago.

New Delhi is now ranked 13th on the list of global investors in US Treasuries. With yields plunging below 2%, these investments should yield profits for the Reserve Bank of India (RBI), New Delhi’s money manager.


“RBI has built up forex reserves in the last one year,” said Rajeev Radhakrishnan, head of fixed-income at SBI Mutual Fund. “The increase in US Treasury holdings reflects it as our central bank prefers to keep forex reserves in most liquid asset classes like UST. There could be notional profits depending on the investment bet.”

India’s investment in US Treasury securities started picking up since October last year. From $138.2 billion in September, it touched $155.3 billion by April this year.

Countries typically seek to increase investment in US Treasuries that are billed as the most liquid among financial assets during periods of economic slowdown. Mainland China holds the largest UST investment worth $11.13 trillion, followed by Japan.

In the same period, India’s forex reserves rose $18 billion to $418 billion by end-April.

“The fall and rise in India's investment in US Treasury securities is in tandem with the movement in the country's foreign exchange reserves in the same period," said Manoj Rane, MD at SionicAdvisors India, a global financial services company. "But it does raise the question whether it would have distorted the distribution of investment in different currencies during this period."

In April, the 10-year benchmark gauge was as high as 2.59%. The gauge slid to less than 2 percent last year and now yields 2.01% amid signs of a global slowdown.

Falling US Treasuries are also beneficial for Indian corporates seeking to tap the overseas credit markets.