India along with BRICS economies lower exposure in US treasuries

MUMBAI: India lowered its exposure to US treasury securities in February along with other BRIC economies due to a slowdown in portfolio investment resulting in lower surpluses in these economies.

India reduced its exposure in US treasury bonds and by 1.6% or $1.1billion in February to $67 billion, data released by the US treasury department.

While, even China, Brazil, Russia and South Africa to lowered their exposure is the US government bonds, the overall foreign investments in these bonds rose 0.77% to $5.9 trillion during the month.

“Many emerging market economies saw a slowdown in portfolio inflows during the month ” said Saugata Bhattacharya, chief economist, Axis Bank. “ This, among others, is likely to have slowed down reserves pile up in these economies because of which they had lesser surplus to invest.” He said. Heightened geopolitical risks on account of troubles in Ukraine also contributed to a pull out of capital from emerging markets, say currency analysts

India’s central bank- Reserve Bank of India which accounts for a bulk of India’s investment in US treasusy bonds sold $ 530 million worth dollars in February to meet local currency demand. This is likely to have prompted the Reserve Bank to pullout from some of its safe have investments in US treasuries.

Moreover, foreign investors turned cautious about interest rate outlook after the new Federal Reserve chairperson Janet Yellen took charge during the month, says a section of the market. Contrary to expectations that she would go slow on tapering of quantitative easing on account of weak job market data, she said that the Fed would not make any abrupt changes to U.S. monetary policy, saying the central bank was on track to keep reducing its stimulus.

Under Yellen’s predecessor, Ben Bernanke, the Fed was seen buying bonds and infusing dollar funds into the financial markets to help lower interest rates and revive investments. In December, however, it decided to begin scaling back its quantitative easing as unemployment dropped and economic growth numbers too looked better.

Since then, however, jobs have slowed down which led many investors to hope that the Fed might go slow on reversal of stimulus.

Investment in US Treasury securities	January'14	February'14
China	1275.6	1272.9
Brazil	298.2	299.7
Russia	131.8	126.2
India	68.1	67
South Africa	11.5	11.4
Grand Total ( All foreign ivestors) (Billion)	5840.3	5885.3

Source: US Treasury Department