Global index inclusion yet to reflect on Gsec yields

MUMBAI: Though the much-anticipated inclusion of the government bonds (G-secs) in the JP Morgan’s emerging market bond index from last Friday has underwhelmed the market with muted response, both in terms of inflows as well as in the flat bond yields. In the long-run this is going to a game-changer for the finance street, say both bond dealers and analysts.

After closing flat on the D-day at 7.02% after rising to 7.1% in initial trade, the benchmark bonds closed 0.01% down on Tuesday, the third day since the inclusion at 7.012%, something nothing to write home about. The rupee also remained range bound and closed with a gain of 0.04 paise at 83.55 to the greenback.

For one, the bond inclusion will bring down the borrowing cost both for government and corporates both directly and indirectly. Secondly, it will increase foreign fund flows, which many peg it at least $25 billion by March 2025 and thus boost the rupee. Increased forex flow can boost the already-record high forex reserves as well as help bridge the current account deficit. But on the negative side, hot money inflows can raise inflation pressure, which RBI has been fighting since May 2022 with limited success.

Announcing the inclusion, JP Morgan on September 21, 2023 said it will be staggered over a 10-month period beginning June 28 to March 31, 2025, indicating 1% increment on its index weighting. That drew the curtains over the decade-long negotiations that the then Reserve Bank governor Raghuram Rajan started in 2013.