Bloomberg Index Services on Tuesday deferred the inclusion of Indian government bonds in its flagship Global Aggregate Index, disappointing investors who had anticipated the announcement and causing bond yields to rise.

Market Response and Impact

India's bond market reacted negatively to the news, with most participants having expected the inclusion to be announced this week. The immediate market impact was significant:

Bloomberg's Assessment and Timeline

Bloomberg Index Services indicated broad support for the long-term trajectory of the Indian government bond market and its potential eventual inclusion in global investment grade benchmarks. However, the service provider highlighted important operational and market-infrastructure considerations that merit further evaluation before inclusion in the flagship global investment grade index.

The company stated it will provide an update on the inclusion status in mid-2026, extending the timeline for potential inclusion by over a year.

Recent Index Inclusions

Despite this setback, Indian bonds have been steadily gaining acceptance in major emerging-market benchmarks:

Market Analysis and Borrowing Plans

Vivek Rajpal, Asia macro strategist at investment advisory firm JB Drax Honore, noted that the supply-demand imbalance is already large for Indian bonds. The market had likely assumed that index inclusion would help address this imbalance, making the deferral a discouraging development.

Rajpal explained that the deferral will likely mean near-term premium on yields will persist and could heighten bonds' reliance on the RBI's open market operations. This comes at a critical time as the Centre and states are scheduled to borrow a record combined ₹8.00 lakh crore via debt markets in the January-March quarter.

Bloomberg Index Services announced on Tuesday that it would defer the inclusion of Indian government bonds in its flagship Global Aggregate Index, sending bond yields higher and disappointing investors who had been expecting the inclusion to be announced this week.

The index provider cited operational and market-infrastructure considerations that require further evaluation before inclusion in the global investment grade benchmark. In a note, Bloomberg stated that while responses indicated broad support for the long-term trajectory of the Indian government bond market, several respondents highlighted important considerations that merit additional assessment.

Market Reaction and Impact

India's bond market reacted negatively to the announcement, with most participants having anticipated inclusion. The immediate market response was significant:

Analyst Perspectives

Vivek Rajpal, Asia macro strategist at investment advisory firm JB Drax Honore, highlighted the broader implications of the deferral. "The supply-demand imbalance is already large for Indian bonds, and the market had probably assumed that the index inclusion would help with that so the deferral is not an encouraging development from that perspective," Rajpal noted.

The analyst further explained that the deferral will likely mean near-term premium on yields will persist, potentially heightening bonds' reliance on the Reserve Bank of India's open market operations.

Recent Index Inclusions

Despite this setback, Indian bonds have been steadily gaining entry into major emerging-market benchmarks:

Government Borrowing Plans

The deferral comes at a time when Indian states and the central government are planning significant market borrowing. Combined borrowing through debt markets is slated at a record ₹8.00 trillion ($88.65 billion) for the January-March quarter, highlighting the importance of foreign investor participation in the bond market.