A milestone on bond street

India's entry into the global bond index is a great sentiment-booster, but much of it has already been factored in

- TAMAL BANDYOPADHYAY

The 10-year government paper auction on Friday (June 28) for ₹20,000 crore received 267 bids worth ₹47,776.500 crore. Its cut-off yield was fixed at 7.0191 per cent. In the secondary market, the 10-year paper yield was hovering around 7 per cent for the better part of the last week.

This auction coincided with India's inclusion in the JPMorgan Government Bond Index-Emerging Markets (GBI-EM) global index suite. Along with the 10-year paper, there was a 40-year bond auction that received 209 bids worth ₹25,570 crore, with a cut-off yield of 7.1004 per cent.

Overall, there was no surprise on Day One of the inclusion - both in terms of bids and yields - although many expected yields to drop as the inclusion in the GBI-EM global index suite is anticipated to increase the demand for bonds, with greater participation of foreign investors. For bonds, yield and prices move in opposite directions; higher demand spikes prices and pushes yields down.

Clearly, the much-celebrated entry into a global bond index has already been factored in. The 10-year yield recently dropped to 6.95 per cent before rising to 7 per cent. Its highest level in the first quarter of the current financial year (April-June 2024) was 7.24 per cent. India will gain a 10 per cent weight in the GBI-EM Global Diversified Index in phases, with 1 per cent added each month, reaching the limit by March 2025.

Launched in June 2005 as the first comprehensive global local emerging markets index, GBI-EM tracks local currency bonds issued by emerging market governments.