MUMBAI: Indian government bond yields are expected to move marginally lower early in the session on Wednesday after getting included in FTSE Russell’s Emerging Markets Government Bond Index (EMGBI).
The decline in yields will be limited until the Reserve Bank of India’s monetary policy decision announcement at 10:00 a.m. IST.
The central bank is expected to maintain a status quo on rates, while a small number of investors are betting on the probability of a change in stance to “neutral”, opening the door to rate cuts as economic growth slows and global rates ease.
The benchmark 10-year bond yield is likely to move between 6.78% and 6.82% till the RBI’s decision, compared with its previous close of 6.8077%, a trader with a private bank said.
“As anticipated and witnessed by Tuesday’s moves in bonds, Indian bonds have now become a part of a third global index and this could lead to some more buying in opening trades.
However, a major focus will be on the RBI’s decision and guidance,“ the trader said. Global index provider FTSE Russell said on Tuesday it would include India’s sovereign bonds in the EMGBI from September 2025, potentially drawing billions of dollars into local bonds.
The announcement follows the inclusion in JPMorgan’s debt index from June 2024 and Bloomberg Index Services, scheduled from January 2025.
Indian bonds were on FTSE’s watch list for the last three years and would represent 9.35% of the index on a market-value weighted basis. The market value of the EMGBI is $4.7 trillion, according to the FTSE release.
Indian bond yields may track US peers lower
It also possibly sets up India for inclusion in the Bloomberg Global Aggregate index next year according to Emkay Global Financial Services.
Meanwhile, the 10-year US yield stayed above the 4% mark, as strong nonfarm payroll data dashed hopes of 75 basis points of rate cuts by the Federal Reserve in 2024.
The bets of a 25-bp cut in November are at 89%, while bets of no reduction stood at 11%.
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