Major inflows via JP Morgan bond index inclusion yet to materialise: HSBC

A large part of inflows via JP Morgan bond index inclusion is yet to materialise and this is likely to be led by benchmark issues, said HSBC in a report on Monday.

The report said that benchmark bonds continue to have low foreign investments.

In September 2023, JP Morgan had announced it will include government papers, issued by the Reserve Bank of India (RBI) under the fully-accessible route (FAR), in its widely-tracked GBI-EM.

The inclusion process will start on June 28 and be phased over a 10-month period with 1 per cent weight included each month until March 31, 2025. Indian bonds will have 10 per cent weight, similar to China.
 

Indian government securities have seen inflows of $10.4 billion since the index inclusion announcement in September 2023.

“India government bonds have already seen inflows of $10.4 billion since the inclusion announcement on September 21, 2023. This poses a question whether a large part of indexation-related inflows have materialised. We note that index-eligible bonds have recorded inflows of only $8.3 billion and four off-the-run issues alone have received 66 per cent of the foreign investments. In our view, a large part of inflows has yet to materialise and this is likely to be led by benchmark issues,” the report said.
 

The report further said that 5-year, 7-year, 10-year and 30-year benchmarks alone could closely track the return performance of the 28 bonds eligible for inclusion. This is given the low foreign positioning, their availability through auctions, and the relative increase in their index weight versus other bonds.
 

Out of the 38 FAR securities, only 28 bonds with the outstanding amount of $413 billion are eligible for inclusion.