THE WORLD BONDS WITH INDIA GOVERNMENT BONDS

After over three years on the watchlist, India Government Bonds (IGBs) entered the JP Morgan local currency indices at the end of June. This month, we dive into the largest index inclusion event of 2024, what this means for investors, and how ETFs allow easy access to this trillion dollar asset class.

Index inclusion is expected to attract circa US$30B of foreign inflows into IGBs.¹ Ahead of index inclusion, foreign investors have piled back into IGBs, with net flows having climbed to more than US$10B since the announcement in September. Inflows have helped to cool yields for the asset class, which have dipped from highs of 7.23% in April to 7.01% today. ¹ Yet, IGBs are among the highest yielding sovereign exposures in Asia, and continue to offer a compelling yield pickup over its emerging markets peers alongside attractive risk-adjusted return potential.

Don’t miss the boat

For investors benchmarked against JPM and BBG EM local currency indices, setting up direct access to the IGB market through the Foreign Portfolio Investor (FPI) route is a lengthy and complex process, which could translate into investment lag and higher tracking error as index inclusion gets underway. An IGB ETF offers immediate access to the market today, bypassing the various complex challenges of directly investing in IGBs.

1 Source: BlackRock, Bloomberg, as of 30 June 2024. Reference to FIINDNT$, I36285US Index.