The much-awaited inclusion of GoI securities to JP Morgan Emerging Bond Index is going to take place from 28th June 2024. JPMorgan said that 23 Indian Government Bonds with a combined notional value of $330 billion are eligible.
India's weight is expected to reach the maximum weight threshold of 10% in the GBI-EM Global Diversified, and approximately 8.7% in the GBI-EM Global index. Maximum weight for Indian securities will be capped at 10%.
Its possible impact
- It will attract more foreign investors to the Indian debt market.
- It will help India’s market borrowing program.
- Because of Indian bond market depth and liquidity, crowding out of private sector issuers will be reduced.
- The Government of India may ease taxation of gilt securities further in the wake of high foreign investment inflow.
- It is likely to have a positive impact on the Indian Rupee.
US FOMC outcomes
In the last policy meeting, the Fed Reserve kept the fund rate unchanged with indication of one more rate hike during this year. The committee projects a 2023 U.S. unemployment rate of 3.8%, down from 4.1% in June. Fed members raised their 2023 U.S. gross domestic product (GDP) growth projection from 1% to 2.1%. The central bank also raised its 2024 GDP growth projection from 1.1% to 1.5%. On the inflation front, the Fed’s projected 2023 core PCE inflation growth rate increased from 3.2% to 3.3%.
Government bonds, SDL and OIS yield movements
During the past week, there were several notable changes in bond yields:
The yield for the 7.18% 2033 bond yield stood flat at 7.16%. Similarly, the 10-year benchmark 7.26% 2033 bond yield came down by 1 basis point to 7.19%. The 7.06% 2028 bond's yield rose by 1 basis point, reaching 7.18%. In contrast, the long-term paper, represented by the 7.25% 2063 bond, declined by 2 bps to 7.34%.
The spread between the 10-year and 5-year bonds declined to 1 basis point from the 3 basis point difference in the previous week. The spread between the 15-year benchmark and the 10-year benchmark stood flat at 8 basis points. Additionally, the spread between the 30-year benchmark and the 10-year benchmark decreased to 15 basis points from the prior 16 basis points over the week.
In terms of the 10-year SDL auction, the cutoff yield stood flat at 7.46% as compared to 7.47%, while the spread rose to 31 basis points from 27 basis points.
Lastly, in the Overnight Indexed Swap (OIS) rates, the 1-year OIS yield rose by 3 basis points, reaching 7.08%, while the 5-year OIS yield stood unchanged at 6.73%.
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