G-sec yields settle flat as foreign inflows underwhelmed investors

The 10-year benchmark bond yield inched up to 7.02 per cent during the day as traders sold their securities at a profit

Yields on government securities (G-sec) ended flat on Friday – a day that saw India’s official inclusion in JPMorgan’s Government Bond Index-Emerging Markets (GBI-EM) kicking in – as foreign inflows underwhelmed investors.

The yield on the benchmark 10-year government bond settled at 7 per cent after inching up to 7.02 per cent during the day.

“Maybe people have bought something before the event. There are other derivative routes that some of the funds would have taken. So, there is no immediate need to buy. They always have the option to buy in a staggered manner,” said Naveen Singh, vice-president of ICICI Securities’ primary dealership.

A dealer at a large state-owned bank said those who had the positions have been selling for the past few days because inflows that were expected did not materialise. “There was also some quarter-end profit booking,” he added.

According to the Clearing Corporation of India data, foreign banks have net-purchased Rs 46,954 crore worth of government bonds in the secondary market in June. On the other hand, foreign portfolio investors have bought Rs 15,616 crore worth of government bonds under the fully accessible route this month. On Thursday, foreign inflows in the government bonds were Rs 946 crore. 

In September 2023, JPMorgan had announced it would include government papers issued by the Reserve Bank of India (RBI) under the fully accessible route in its widely tracked GBI-EM. The inclusion process will be phased over a 10-month period, with a 1 per cent weighting added each month until March 31, 2025. Indian bonds will have 10 per cent weighting, similar to those of China.

India’s g-sec have seen foreign inflows of $10.4 billion (about Rs 86,000 crore) since JPMorgan’s inclusion announcement last September. Of the 38 bonds under the fully accessible route, only 29 meet the eligibility criteria for the JPMorgan bond index, which requires a face value of over $1 billion and a remaining maturity of more than 2.5 years.

Standard Chartered has projected at least $2-3 billion inflows every month as India’s index weighting increases to 10 per cent.

“India is a strong diversification option, with good macros and a stable currency. We could see foreign inflows of $2 billion to $3 billion per month, with the pace likely to accelerate once the US starts cutting rates,” said Parul Mittal Sinha, head of financial markets for India and co-head of macro trading for ASA at Standard Chartered.

“Since October 2023, non-residents have poured almost $10 billion into Indian government bonds, and an additional $5 billion though USD-settled, INR-denominated supranational bonds. With $2.3 billion of inflows in June alone, there’s strong confidence that by the end of March 2025, index trackers will have a 10 per cent weight allocated to India,” Sinha added.