Indian bonds fall after setback in the Bloomberg index

Indian government bonds fell on Tuesday as Bloomberg Index Services hesitated to include Indian debt in the global index. This surprised traders as they had already factored these into prices, adding that the review for inclusion was open and ongoing.The benchmark 10-year yield ended at 6.6277%, after finishing at 6.6050% on Monday. Bond yields move in the opposite direction to prices.

Bloomberg ‌Index Services has postponed the inclusion of Indian bonds in its flagship Global Aggregate Index, disappointing investors who had seen the inclusion as a done deal.

The index provider said a number of respondents highlighted key operational and market infrastructure considerations that merit further evaluation before inclusion.

“The decision disappointed markets that had largely priced in the inclusion this month, with expectations of up to $25 billion in inflows over 10 months,” said Harsimran Sahni, head of finance at Anand Rathi Global Finance.

“This postponement comes as a surprise as Indian bonds have steadily gained access to key emerging market benchmarks.”

Market players had expected bonds to be included in the index through a fully accessible route, potentially leading to inflows of $10 billion to $25 billion. Still, the rise in yields was limited after marginally better-than-expected demand from long-term investors for 268.15 billion rupees ($2.97 billion) of government bonds.

The focus remains on geopolitical risks and higher oil prices due to potential supply disruptions.

PRICES

The Indian overnight index swap rate rose, driven by the longer end of the swap curve, following the rise in bond yields.

The one-year OIS rose 1.75 bps to 5.5050%, while the two-year OIS rate closed 1.5 bps higher at 5.5850%. The liquid five-year OIS rate rose by approximately 3.25 basis points to 5.9625%. ($1 = 90.2300 Indian Rupees)