Mumbai: Indian sovereign bonds headed for their best monthly performance in more than three years and the rupee strengthened as foreign investors snapped up local debt at the fastest pace since October.

Overseas holdings of rupee-denominated government and corporate securities have risen by 73.5 billion rupees ($1.1 billion) this month, as appetite for assets in emerging markets picked up after the U.K.’s June vote to leave the European Union prompted global central banks to boost monetary stimulus. Improving liquidity in India’s banking system and the prospect of more monetary easing has also spurred local demand for the notes.

The yield on government notes due January 2026 has slumped 27 basis points in July, the most in 38 months, to 7.18 per cent as of 11:17am in Mumbai, prices from the central bank’s trading system show. A close at that level will be the lowest for benchmark 10-year debt since May 2013.

Bond gains have come as a pick up in monsoon rains spurred optimism that better crop output will help contain inflation and as speculation mounted that the nation’s new central banker will lean toward looser monetary policy. Investors are also drawn to the prospect of economic reforms in Asia’s third-largest economy, which is growing at the fastest pace among the world’s major nations, and offers Asia’s highest 10-year sovereign yields.

“Bonds should benefit from the favourable liquidity conditions,” said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC, which oversees about $1 trillion in assets. “We remain positive on Indian financial markets, based on improvement in the domestic macro outlook, expected increase in company earnings, continued progress in reforms, and a supportive central bank policy.”

The rupee has strengthened 0.7 per cent in July, set for its first monthly gain since March, as foreign investors poured a net $1.4 billion into Indian stocks. The currency was steady on Friday at 67.06 per dollar. The benchmark S&P BSE Sensex index was on course for a fifth monthly advance, the longest run since 2014.

Prime Minister Narendra Modi’s government this week inched closer to implementing the nation’s most ambitious tax reform since the 1990s, after the cabinet met a key opposition demand on proposed legislation that would clear the way for a national sales levy. The goods-and-services tax, or GST, aims to replace more than a dozen levies, creating a single market among India’s 1.3 billion people.

The Bank of Japan expanded its purchases of exchange-traded funds and doubled the size of a US dollar lending program on Friday, even as it refrained from boosting the pace of government-bond purchases that have formed the main part of its monetary stimulus.