India bond bulls stung as index inclusion snub sends shockwaves

MUMBAI: Indian government bonds are poised for a sharp sell-off at the start of the new month, with the benchmark yield likely to climb to levels last seen more than seven weeks ago, after the inclusion of Indian debt in a global index was deferred, disappointing investors.

The benchmark Indian 6.94% 2036 bond yield is expected to hit 6.90% in early deals on Monday, according to a trader at a private-sector bank, after closing at 6.8343% on Friday.

The yield has risen an aggregate of 12 basis points in the last three weeks.

After Indian market hours on Friday, Bloomberg Index Services deferred the inclusion of bonds in its flagship Global Aggregate Index, leaving investors flabbergasted, as they had expected that recent tax changes would help the South Asian nation’s debt gain entry.

The inclusion would have paved the way for dollar inflows into the debt market, which would have helped the country’s local currency, which has stayed under pressure for most of 2026.

“It is an absolute shocker for bonds, as traders had assumed that inclusion is a given after Indian authorities announced a host of changes in June,” the trader said.

Foreign investors net sold bonds under the fully accessible route worth 54 billion rupees ($566.16 million) in the last six sessions, and are set to extend the move this week.

Their net purchases had hit $4.4 billion from June 1, before a fifth of that was reversed.

The Reserve Bank of India’s monetary policy decision is due on Wednesday, when it is widely expected to keep its key interest rate unchanged, according to a Reuters poll, with major focus on guidance and economic projections.