(Bloomberg) -- JPMorgan Chase & Co. will more closely monitor liquidity in longer tenor Indian debt that is part of its emerging market bond index, after moves by authorities to remove eligibility from future issuances of the bonds.
A lack of secondary market quotes or complaints from clients would prompt the Wall Street bank to reassess whether the notes should continue to be included in the index, according to a person familiar the institution’s thinking, who asked not to be named because they weren’t authorized to speak publicly on the matter. The index-provider will also keep close tabs on notes with a maturity at issue of 14 years and 30 years, the person also said.
The South Asian nation surprised investors by imposing restrictions on sales of new securities with those tenors this week, just a month after it was included in JPMorgan’s flagship gauge. The move suggested officials were uneasy about the amount of inflows landing in the government debt market, though an official in New Delhi said India was not keen to limit inflows into the front end of the yield curve.
The US lender so far has declined to comment on India’s decision to restrict foreign investment in some newly issued debt. When contacted by Bloomberg News about whether liquidity in certain bonds was now being scrutinized more closely, a spokesperson for JPMorgan declined to comment.
India’s accession to the index is a significant milestone for its financial market and is projected to attract billions in investment. Having removed Russian bonds from its widely-tracked indexes following the invasion of Ukraine, JPMorgan announced India’s inclusion last September even though New Delhi balked at tax changes that would have facilitated the trading of the debt on platforms such as Euroclear.
Having debuted with a share of 1%, India’s weighting in the bond index is due to rise to 10% by March. While there are enough index-eligible securities to reach the allotted threshold, if the amount of fully-accessible route (FAR) bonds available to overseas investors were to decrease significantly, that would be cause for concern, the person said.
The liquidity checks for India aren’t exceptional. JPMorgan has taken similar steps in the case of other Asian markets, including Thailand, the Philippines and Malaysia, the person said. The Philippines was removed from the index due to declining liquidity, the person said.
JPMorgan also declined to comment when asked about the steps taken with respect to other countries. A spokesperson didn’t immediately comment when asked on Friday about the impact of a large decrease in available FAR bonds.
Bloomberg Index Services Ltd. will also include some Indian bonds in its emerging market local currency index starting next year. Bloomberg LP is the parent company of Bloomberg Index Services Ltd., which administers indexes that compete with those from other service providers.
--With assistance from Carolina Wilson.
(Updates to add detail on the effect of any decrease in bond supply from sixth paragraph)
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