G-sec yields may fall below 7 per cent on index inclusion

As per an SBI report, yields could touch 7% even before March of the current fiscal and should breach 7% in FY25.
Image used for representational purpose only. (File Photo)
Image used for representational purpose only. (File Photo)

NEW DELHI:   The Government of India bond yield may fall below 7% after their inclusion to JP Morgan’s Emerging-market Index, feel experts. The 10-year government bond yield on Monday remained unchanged at 7.15%.

The 10-year government bond yield fell 7 basis points (bps) to 7.0717% in early trades on Friday, the lowest 10-year yield since July 27, before closing at 7.15%. As per an SBI report, yields could touch 7% even before March of the current fiscal and should breach 7% in FY25.

“Demand for G-sec could outstrip supply of G-sec...This could be a new turning point in the G-sec market in India where supply has traditionally outstripped demand for G-sec,” SBI stated in the report. Government bonds are called G-Sec.

Citi Bank analysts expect the yield to ease to 6.80% over the coming months. India’s weight could reach the threshold of 10% in GBI-EM Global Diversified and nearly 8.7% in the GBI-EM Global index, SBI said. This may result in passive flows of about $24 billion based on current AUM/holdings by March 25. JP Morgan announced on September 21 it will incorporate Indian government bonds (IGBs) into its benchmark, the Emerging-market Index Global Diversified (GBI-EMGD).

The inclusion of the bonds will commence on June 28, 2024, with India being allocated a weight of 10% on the index. The inclusion could lead to more global index providers adding Indian bonds to their indices. As per SBI, FTSE Russell, another index provider, is considering the inclusion of the bonds in its emerging market gauge. Puneet Pal, head-fixed income, PGIM India Mutual Fund, said the broad range of the benchmark 10-year bond yield will be between 7.00% and 7.25% over the next couple of months.

Given the inclusion of the bonds in JP Morgan EM Index and the recent rise in yields,  which has pushed back the expectations of rate cuts, yields are entering attractive territory and investors can look to raise allocation to fixed income as growth is expected to slow down towards the end of the year.

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