India Bonds: Bloomberg Index Inclusion Delayed Again

Bloomberg Index Services has postponed the anticipated inclusion of Indian government bonds into its Global Aggregate Index. The company cited outstanding operational and market infrastructure issues as the reason for the deferral, indicating that aspects like automated trading workflows and post-trade settlement timelines require further assessment. This development deviates from market expectations, as financial markets had factored in the likelihood of inclusion during a mid-July review.

This deferral could lead to an immediate hardening of sovereign bond yields. Analysts had projected substantial inflows, ranging from $10-15 billion, during the phase-in period. The Indian government had taken steps, such as waiving capital gains and interest taxes, while the Reserve Bank of India expanded the eligible investable universe for overseas funds. These measures were seen as building a strong case for inclusion in the widely followed index, which tracks over $70 trillion in bonds.

Despite this setback, Indian bonds are already part of other emerging-market debt indexes, including the JP Morgan EM index (included in June 2024), Bloomberg EM index (scheduled for January 2025), and FTSE Russel EM index (scheduled for September 2025). The 10-year benchmark government bond yield closed at 6.83% on Friday, with dealers expecting it to trade around 6.90% on Monday. The market had witnessed significant inflows in June, with foreign portfolio investors pouring in a record Rs 55,518 crores, driven by expectations of imminent index inclusion.