Indian Government Bonds Decline as Bloomberg Defers Global Index Inclusion Until Mid-2026
Indian government bonds declined Tuesday after Bloomberg Index Services deferred inclusion in its global index until mid-2026, causing the 10-year yield to rise to 6.63% from 6.61%. The decision disappointed investors who expected $10-20 billion in foreign inflows from index inclusion. State debt auctions worth ₹268.15 billion and a $10 billion RBI forex swap are scheduled, while geopolitical risks add further pressure to bond markets.
*this image is generated using AI for illustrative purposes only.
Indian government bonds faced significant selling pressure on Tuesday following Bloomberg Index Services' decision to defer the inclusion of Indian bonds in its global aggregate index, extending the review process until mid-2026. The announcement dashed market expectations and triggered a notable shift in bond yields throughout the trading session.
Bond Market Performance
The benchmark 10-year government bond yield demonstrated the market's disappointment with the Bloomberg decision. Key yield movements included:
| Bond Metric | Current Level | Previous Close | Change |
|---|---|---|---|
| 10-year yield (10:35 AM IST) | 6.63% | 6.61% (Monday) | +2.84 bps |
| Initial morning movement | -3 bps | ||
| Post-Bloomberg news swing | +6 bps higher |
The yield volatility reflected the market's initial optimism followed by sharp disappointment after the index announcement. Bond yields move inversely to prices, indicating that bond prices fell as yields rose.
Bloomberg Index Decision Impact
Bloomberg Index Services' decision to keep the review "open and ongoing" until mid-2026 significantly impacted market sentiment. Traders had been positioning for India's fully accessible route bonds to join the Bloomberg Aggregate Bond Index, expecting substantial foreign investment inflows.
Goldman Sachs had estimated that index inclusion could generate $10-20 billion of inflows into the Indian debt market. A private-bank trader characterized the deferral as "a major setback for the market," noting that investors had already begun positioning for the anticipated inclusion.
Overnight Index Swap Rates
The disappointment extended to India's overnight index swap market, with longer-duration rates rising as sentiment deteriorated:
| OIS Tenure | Rate Level | Change |
|---|---|---|
| One-year OIS | 5.49% | - |
| Two-year OIS | 5.59% | +1.5 bps |
| Five-year OIS | 5.96% | +3 bps |
Upcoming Market Events
Several significant market activities are scheduled that could influence bond market dynamics:
- State debt auctions: Indian states are set to auction ₹268.15 billion ($2.97 billion) worth of bonds, representing approximately 26% less than the amount outlined in the borrowing calendar
- RBI forex operations: The central bank is scheduled to initiate a $10 billion dollar-rupee foreign-exchange swap
- Secondary market activity: Traders speculated that the RBI was actively purchasing bonds in the secondary market on Monday
External Risk Factors
Beyond the Bloomberg index disappointment, traders identified additional headwinds for Indian bonds, including geopolitical risks and higher oil prices. Market participants are closely monitoring the developing tensions between President Trump and the U.S. Federal Reserve, as well as ongoing developments in Iran, which could further impact bond market sentiment and performance.
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