MUMBAI - Indian government bonds are on the cusp of attracting significant international investment, with expectations set high for a Bloomberg index inclusion. Sameer Karyatt from DBS Bank India's treasury department anticipates that this listing could draw approximately $25 billion into the market. The possible inclusion is predicted to compress the India 10-year yield by roughly 7 basis points (bps).
The market has not yet rallied in anticipation of the listing, suggesting that yields should remain stable if there is a delay in the bonds being added to the index. This steadiness comes despite a substantial influx of funds into Indian bonds following JPMorgan (NYSE:JPM)'s announcement in September that it would include Indian government bonds in its index by June 2024. The Clearing Corp of India reported over 165 billion rupees entering bonds not subject to foreign investment limits as a result.
The domestic bond market sentiment has been bolstered by a combination of declining U.S. yields, falling oil prices, and the expectation that the U.S. Federal Reserve may reduce interest rates by mid-2024. These factors have contributed to a more optimistic outlook for Indian bonds.
Supporting this positive trend, the benchmark bond (7.18% maturing in 2033) has seen its yield decrease to 7.25% from last month’s peak of 7.40%. This drop aligns with softer-than-expected U.S inflation data and India's core inflation moving closer to the central bank's target range of around 4.5%. Moreover, there are no immediate plans for debt sales by the central bank, which could further stabilize bond prices.
Investors and market analysts are now keenly awaiting decisions on Bloomberg index entries, which could further solidify India's position in the global bond market and provide a substantial boost to its economy through increased foreign investments.
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