The world’s mounting stock of negative-yielding debt is drawing foreigners to Indian bonds.

They are finding ready sellers in the nation’s state-run banks who are looking to trim holdings after a powerful rally

Global funds have snapped up Rs 66.27 crore of debt since the Government’s budget on July 5. State-owned lenders have offloaded an even bigger amount -- Rs 16,000 crore, according to data collected, suggesting local funds and other institutional investors were also buyers.

Sovereign yields have tumbled to the lowest in more than two years as the market welcomed Finance Minister Nirmala Sitharaman’s unexpected move to tighten the fiscal-deficit target and shift part of the governments borrowing burden overseas. At the same time, with the 10-year rate at 6.38 per cent, India offers plenty of premium to developed markets.

“This chase for our yields is going to continue for some time. They have very few places to invest that offer a decent yield pick-up plus a stable currency,” said Anand Bagri, domestic market head at RBL Bank Ltd in Mumbai.

For state-run banks hobbled by non-performing loans, the rally is an opportunity to realise gains on their investment portfolios. Along with capital injections also included in the annual budget, that could give them additional fire-power to extend credit again as Prime Minister Narendra Modi tries to juice economic growth.

“The signal here is that you want banks to increase lending, and not be in Government bonds,” Shailendra Jhingan, chief executive at ICICI Securities Primary Dealership Ltd, said.

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