Government bonds will be included in the Bloomberg Emerging Market (EM) Local Currency Government Index on January 31, which Nick Gendron, global head of fixed income index at Bloomberg Index Services described “as a great first step”.
However, the Global Aggregate Index is 10 times the size of the EM index in market capitalisation, where making the processes work at scale would be an important parameter. The EM index has a market cap of $6.5 trillion as against BGA at almost $70 trillion.
Last July, JP Morgan was the first to include Indian bonds in its JP Morgan Emerging Market Index, which led to investment in Indian bonds of more than ₹63,300 crore under the fully accessible route (FAR).
The weight of fully accessible route (FAR) bonds under the Bloomberg EM index will go up to 10% of their full market value every month over the 10-month period ending in October 2025.
Gendron said that to be part of the BGA Index, “an absolute must for any country to be included in the Global Aggregate is for the rating to be ‘investment grade’ and there can’t be any issues in hedging the currency. We do need an investment grade rating by two of the three major agencies, that’s how our index rating scheme works.”India is rated in the lowest tranche – ‘BBB minus’ – of investment grade by major global rating agencies, S&P, Moody’s and Fitch.S&P Global Ratings stated last July that India’s rating could be upgraded in the next 24 months if its fiscal deficit, currently at 4.9%, comes down to 4%. The government is aiming for 4.5% by 2025-26, as per the fiscal consolidation roadmap.
Bond traders say that after decades of neglecting Indian government bonds, global investors are queuing up for them as the macroeconomy stabilises with finances moving to fiscal deficit targets.
Gendron said that India was one of the top-performing markets in the world last year, in 2024. “India is going to be one of the top three size-wise local EM Index,” he said. China and South Korea are the other two countries.
However, ease of investing in Indian bonds and making the processes work at scale is where the discussions are going to be centred on, he said.
“Many steps have been taken to ease the process, like the requirement of margins to be posted along with the extension of trading hours. But the fund registration is still a cumbersome process,” Gendron said.
