India’s bond traders are an ecstatic lot. The value of their holdings has only gone up in recent times with the benchmark 10-year yield down more than 40 basis points in just a fortnight.

It should be noted that some are more bullish than others. Data from Clearing Corporation of India Ltd shows that mutual funds and foreign banks were the biggest buyers of government bonds over this period.

Beyond the interest rate play, the motivation behind both these groups is slightly different.

Mutual funds raised their sovereign bond buying to increase the safety net of their funds. This came as a lesson after their net asset values took a hit with e series of defaults and downgrades of bonds issued by a clutch of non-bank lenders and conglomerates.

The regulatory push from Securities Exchange Board of India (SEBI) which mandated liquid funds to hold 20% of their assets in safe treasury bills and government bonds is also driving this buying.

Foreign banks are perhaps the most bullish of the lot. The interest from foreign investors is not surprising given that globally yields are ultra low and even negative in some countries. With few avenues to make money, foreign investors would be fools not to buy Indian bonds in a falling interest rate cycle.

Interestingly, public sector banks have been net sellers during this upswing. It is not that they do not believe times are great for bonds. They sold with a singled purpose of booking profits.

Left with little avenues to make money as bad loans continue to eat into their profits, public sector lenders are squeezing their treasury side for as much gains as possible.

Others such as insurance companies, provident and pension funds and even private banks have been net buyers.

In all, bond traders have all the reasons to continue being bullish.

The government is willing to take a slice of its supply offshore through a sovereign dollar bond issue. Bank of America Merrill Lynch analysts believe that there is potential for a $10 billion issue which would take away nearly 15% of the incremental supply during the rest of the year.

The central bank of the country has pretty much guaranteed policy rate cuts and economic data has left no door open for any tightness. Liquidity has improved with the banking system in surplus mode.

There is indeed nothing stopping the bond market now.