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Indian sovereign bonds that are eligible for global debt inclusion saw their first weekly outflow since getting added to JPMorgan Chase & Co’s emerging-market bond index.
Overseas investors sold 16.8 billion rupees ($200 million) of so-called Fully Accessible Route bonds last week, according to Clearing Corporation of India data. That’s the first such outflow since the addition into JPMorgan’s index in June, and the biggest since the week to May 10, data showed.
The outflows came as US Treasury yields climbed last week on bets the Federal Reserve may be slow to cut rates, potentially narrowing the yield spread that Indian securities currently enjoy. The size of the weekly selling remains modest as compared to the average weekly inflow of $570 million since the index inclusion, according to Morgan Stanley.
“There was an unwinding of total return swap trades resulting in debt outflows due to change in Fed rate expectations and a pullback in US yields,” said Naveen Singh, head of trading at ICICI Securities Primary Dealership Ltd.
The yield on the benchmark 10-year Indian bond fell four basis points last week, while that on a similar-maturity US note climbed 13 basis points.
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While announcement of inclusion last week in the FTSE Russell and Bloomberg emerging market indexes from January 2025 will have a limited incremental impact on passive inflows, it is likely to enhance the attractiveness of duration for Indian bonds, Morgan Stanley strategists Nimish Prabhune and Min Dai wrote in a note.
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--With assistance from Ronojoy Mazumdar and Catherine Bosley.
(Updates with bond yields in the fifth paragraph)
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