What are bond indices

Raghuram Rajan recently said, efforts would be made about bringing India into some bond indices that exist globally

The Reserve Bank of India (RBI) governor Raghuram Rajan said last week that there are some talks about bringing India into some of the bond indices that exist globally. Rajan also added that they will have  conversations with international index agencies and some of the investment banks that create these indices. “Sometimes they require pace that we have to examine before we can be comfortable with. But we will have the conversations,” said Rajan. 

 

What is a bond index?

 

A index used to measure the performance of bonds based on market value which form a part of the index. Bond indices follow a set of rules for being included in the index.

 

What are the various types of bond indices?

 

Such an index may comprise of government bonds (g-secs), corporate bonds, high-yield bonds etc.

 

Which are some of the well know bond market indices?

 

Barclays Capital aggregate bond index, JP Morgan government bond index, Salomon Smith Barney world government bond index, Merrill Lynch domestic master, Salomon broad investment grade index etc.

 

What is the purpose of these indices?

 

It gives a sense of direction to the investors, primarily institutional investors who are looking to buy or sell in the market. By looking at the index one can tell if the bond market is bearish or bullish.

 

How will it help India if it becomes a part of one of these global bond indices?

 

Indian bonds will find more recognition and being a part of a global index will help to attract more flows from Foreign Institutional Investors (FIIs) into Indian bonds. It will also lead to development of the Indian debt market. Inclusion of India in one of these global bond indices will primarily benefit the institutional investors.

 

What is the need of the hour for India?

 

There is a need for more reforms in the debt market for being a part of one of these global indices. According to experts one of the important steps in this direction would be to enhance the FII limit in Indian bonds further.

 

How long it will take for India to be a part of one of these global indices?

 

Experts do not see it happening overnight. It may take up to one year for something like this to materialise.