Indian government bonds could see foreign inflows of close to $25 billion if they get included in key Bloomberg bond indices, a treasury official with DBS Bank India said.
The India 10-year bond yield could move lower by about 7 bps in case of any news of inclusion in the Bloomberg Index, with inflows of around $25 billion, said Sameer Karyatt, executive director – treasury and markets at DBS Bank India.
But bond yields may not rise if the inclusion is deferred as the market has not rallied in anticipation, Karyatt added.
Bond traders are eyeing a decision on the inclusion of Indian bonds in the Bloomberg Global Aggregate and the Emerging Market Local Currency indices, and expect an announcement by the end of this month.
In September, JPMorgan announced the inclusion of India in its widely tracked emerging market debt index from June 2024.
Market participants have pegged inflows in Indian bonds in the range of $20 billion to $25 billion over the next year.
Bonds under the fully accessible route, with no upper cap on foreign investments, saw more than Rs 16,500 crore ($2 billion) of inflows since JPMorgan’s announcement, data from Clearing Corp of India showed.
This has helped keep yields in check.
A drop in US yields as well as a retreat in oil prices from their recent highs has also aided a fall in domestic yields, said Karyatt.
Indian benchmark 7.18 per cent 2033 bond yield was trading around 7.25 per cent on Tuesday, down 15 bps from a high of 7.40 per cent hit last month.
The latest softer-than-expected inflation data in the world’s largest economy has boosted bets that the US Federal Reserve is done with rate hikes and could begin cutting rates in the first half of 2024.
Data showing core inflation in India has moved towards 4.5 per cent and expectations that any debt sale from the central bank is unlikely immediately has also helped market sentiment.