MUMBAI: Indian government bond yields are expected to fall sharply in the early session on Friday, after JPMorgan said it will include India in its widely tracked emerging market debt index, opening doors for heavy dollar inflows into the world’s fifth-largest economy.
The 10-year benchmark 7.18% 2033 bond yield is likely to see a drop of around 15 basis points (bps) in opening trades and move to around 7%, compared to its previous close of 7.1443%, a trader with a private bank said.
“Though there was strong optimism regarding the move, the timing has taken many by surprise and there is still a lot of rally that is to be seen in bonds,” a trader with a foreign bank said.
The inclusion will begin on June 28, 2024, and extend over 10 months with 1% increments on its index weighting, as India is expected to reach the maximum weighting of 10%, JPMorgan said.
Foreign bank DBS said there was also high demand amongst benchmark investors for India’s inclusion in the index and that a final 10% weightage in the JPM index could lead to inflows of $25 billion to $30 billion into India after the inclusion is complete.
A review from another index provider, the FTSE global bond index, is due before the end of this month.
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Markets will ignore other factors such as elevated oil prices and jumping US yields for the time being, even as 10-year US yield hits 4.50%, traders further said.
“All those factors would cease to exist for some days, and markets will react only on the index inclusion bit,” another trader added.
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