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Citi sees India's 10-yr Bond Yield Dropping to 6.80% post Index Inclusion

MUMBAI, Sept 22 (Reuters) - JPMorgan's decision to include local Indian bonds in its widely tracked emerging market debt index could boost demand for debt and push India's benchmark 10-year bond yield to sub-7% levels in the coming months, Citi said in a note on Friday.

The 10-year benchmark 7.18% 2033 bond yield dropped seven basis points (bps) to 7.0717% in early trades on Friday, the lowest for the 10-year yield since July 27, compared to its previous close of 7.1443%. It was last at 7.1072%.

"We continue to expect the 10-year India bond yields to ease down to 6.80% over the coming months (from the current 7.16%)," Citi analysts wrote.

India's local bonds will be included in the Government Bond Index-Emerging Markets (GBI-EM) index and the index suite, benchmarked by about $236 billion in global funds, according to JPMorgan.

The announcement should also drive expectations of India's bond index inclusion announcements from other index managers such as the Bloomberg Barclays Global Aggregate Index, Citi said.

The brokerage estimates the inclusion will bring in about $22-23 billion over the 10-month period starting June 2024.

"However, it is noteworthy that active investors and pre-positioning by banks to facilitate passive index manager demand typically starts months in advance of actual inclusion."

Reporting by Siddhi Nayak; Editing by Janane Venkatraman

Source: Reuters

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