Tag: G-Secs

New York: FTSE Russell placed Indian government bonds on the watchlist for possible inclusion in its debt index, a move that may bring the nation closer to its aim of joining a global bond gauge after several false starts.

Rupee securities will be considered for addition to the FTSE Emerging Markets Government Bond Index, FTSE said as part of its semi-annual review. In the coming weeks, it’ll start an index that tracks securities issued under the Fully Accessible Route after investors expressed an interest in the notes.

India has been trying to gain entry into a global debt index since 2019, but talks with index compilers have made little headway. A report this month said India’s efforts have been stymied by demands from global bond funds including a request that the government doesn’t change tax rules to the disadvantage of investors.

“The attractiveness of IGBs as an ongoing investment will not solely depend on index inclusion,” said Arthur Lau, head of Asia ex-Japan indexed income at PineBridge Investments Asia. “Other factors including expected returns based on the prevailing economic conditions, government policies, and relative value to other local bond markets should be taken into account.”

$10 billion inflows

Inclusion in FTSE’s index may attract about $10 billion of inflows into rupee securities, said Dariusz Kowalczyk, a senior emerging-market strategist at Credit Agricole CIB in Hong Kong, adding that this was an initial estimate.

At its September review, JPMorgan said Indian bonds remain off index and were still under review for inclusion, although about $115 billion in notional value of current and upcoming government debt have been marked for accessibility.

How will India benefit?

If India becomes part of the EMGBI, foreign portfolio investors could step up investments in the Government Securities (G-Sec) market, say market players.

The move will aid the massive government borrowing of Rs 12 lakh crore planned for fiscal 2022. Bond traders are demanding higher rates of G-Secs, forcing RBI to devolve a significant portion of the auction on primary dealers

Inclusion in FTSE will bring in new investors and reduce pressure on banks to invest in government bonds and free resources relatively for lending.

IF G-Sec yields go down, it will benefit corporates too as corporate bond yields mirror government securities.

However, the quantum of flows will depend on the percentage allocation to India. Also, FTSE is a smaller index when compared to Bloomberg Barclays and JP Morgan Emerging Market Government Bond Index (GBI-EM).

China inclusion

Index provider FTSE Russell has given its final approval for Chinese sovereign bonds to be included in its flagship bond index from later this year, setting the stage for billions of dollars of inflows into the world’s second-largest economy.

But a longer-than-expected inclusion period – of 36 months, rather than one year, as FTSE had previously announced – reflects persistent concerns among some global investors about investing in the world’s second-largest bond market.

Chinese government bonds (CGBs) will be added to the FTSE World Government Bond Index (WGBI) over three years from the end of October, FTSE Russell said in a statement.