Slower than expected pace of foreign inflows keep bond yields steady

Debt market witnessed Rs 3,370 crore inflows in two trading sessions following the inclusion of Indian bonds in JP Morgan's index

The pace of foreign inflows into the government bond market, following the inclusion of Indian bonds in JPMorgan's Government Bond Index-Emerging Markets (GBI-EM), has been slower than expected, maintaining yield stability, dealers said.

The absence of substantial domestic triggers, combined with a series of impending data releases scheduled for the week, has played a role in keeping yields anchored, they said.

Over the course of two trading sessions following the index inclusion on Friday, the domestic debt market recorded inflows amounting to Rs 3,370 crore.

“There are some data points expected this week, but even in a worst-case scenario, the yield might inch up to 7.03-7.04 per cent, as these levels are seen as attractive for buyers,” commented a dealer from a prominent state-owned bank. “Everyone except mutual funds is on the buying side; the domestic story remains robust.”

 

On Tuesday, the yield on the benchmark bond was steady at 7.01 per cent, compared to 7 per cent on Friday. “Initial profit-booking occurred, and there has been a continuous supply of government securities that need to be absorbed. Thus, we do not anticipate a major deviation in yields,” explained Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP.

Last September, JPMorgan announced the inclusion of government securities issued by the Reserve Bank of India (RBI) under the fully accessible route in its widely monitored GBI-EM. These bonds are being gradually integrated over 10 months, concluding by March 31, 2025, with a monthly weighting increment of 1 per cent, eventually reaching a 10 per cent weighting akin to China’s bonds.

Since the announcement, India’s government securities have attracted foreign inflows of $10.4 billion (approximately Rs 86,000 crore). Of the 38 bonds under the fully accessible route, only 29 meet the eligibility criteria for the JPMorgan bond index, which mandates a face value exceeding $1 billion and a remaining maturity of over 2.5 years.