Rupee opens 4 paise stronger at 85.97 against the US dollar

Indian rupee

The Indian rupee opened 4 paise stronger at 85.97 against the US dollar as compared to the close of 86.01 against the greenback a day ago.

The rupee was under pressure on May 22 due to demand from oil companies and sell-off by foreign investors, as well as by the impact of narrowing spread between US and India bonds. The bond spread narrowed to an over 20-year low, making Indian bonds less attractive for foreign investors and carry trades.

On May 22, Moneycontrol reported that the spread between Indian bonds and US bonds maturing in 10-year fell to its lowest in over 20 years to 164 basis points (bps) after the yield on the latter rose sharply over the fiscal deficit concerns.

According to Bloomberg data, the spread is lowest since July 28, 2004, when it was at 135 bps. The Indian 10-year benchmark bond yield was trading at 6.2496 percent, and 10-year US treasury yield at 4.5866 percent.

Foreign institutional investors (FIIs) offloaded equities worth Rs 5,045 crore on May 22, just a day after purchasing over Rs 2,200 crore. In contrast, domestic institutional investors (DIIs) provided some support to the market with net purchases of Rs 3,715 crore, provisional data from the NSE showed.