Indian bond yields continue to rise...........>

INDIA: Indian bond yields continue to rise alongside weakness in the INR as US

monetary tightening expectations gather pace, narrowing India's previously high

yield advantage over the US. The rise in Indian bond yields and the weakness in

the rupee has wiped out almost two years of total returns for dollar-based bond

investors. MNI believes that Asian FX faces a period of weakness across the

board, and the INR is unlikely to be spared unless the RBI adopts a much tighter

monetary policy stance. However, the ongoing rise in the RBI's reserve holdings

suggest that the central bank has actually been steering the currency weaker

rather than acting against weakness, in stark contrast to Indonesia's central

bank. India's stronger external balance sheet (with lower levels of external

debt, lower share of foreign ownership in its bond market) suggests that any

surge in the dollar would be likely to undermine Indonesian assets more than

their Indian counterparts. The main risk to this view comes from a continued

rise in oil prices, given India's much greater reliance on oil imports compared

to Indonesia.