HSBC buys $3B+ Indian government bonds; yields jump

HSBC has bought at least $3B in Indian government bonds since July 2026, funded via diaspora-linked dollar deposits (FCNR). The move places HSBC among the largest foreign buyers of Indian debt. Foreign demand for Indian bonds has accelerated. Through mid-July 2026, foreign investors added $7.7B year-to-date, already exceeding the $6.6B total for all of 2025. HSBC’s $3B+ share represents a significant portion of that inflow. The key trade is the yield gap. Indian 10-year government securities are yielding about 6.8%–7%, roughly 3%–4% higher than developed-market peers. A policy change boosts the attractiveness: effective April 1, 2026, India removed withholding and capital gains taxes on government bonds for foreign investors, reducing “tax drag” and bringing gross yield closer to net yield. HSBC’s funding channel comes from FCNR (foreign-currency non-resident) dollar accounts held by the Indian diaspora. Some banks reportedly use up to 19x leverage on FCNR deposits through GIFT City (India’s international financial services hub). Banks then use the dollar funding to buy Indian government bonds, earning the spread between their funding cost and bond yields. Market implications for bonds: purchases in July 2026 were about $3.04B, implying HSBC was not the only large buyer. The leveraged FCNR approach (up to 19x) adds risk if conditions shift—especially if the rupee weakens sharply versus the dollar or if yields move materially. Overall: HSBC buys $3B+ Indian government bonds as foreign inflows surge, supported by the tax change and the diaspora-dollar funding structure.