Indian Bond Yields Rise as Bloomberg Defers Index Inclusion Until Mid-2026
Bloomberg Index Services deferred India's inclusion in its Global Aggregate Index until mid-2026, causing the 10-year government bond yield to rise 3 basis points to 6.63%. The delay disappointed markets expecting $20-25 billion in foreign inflows and affected state loan auctions worth ₹26,815 crore. Bloomberg cited operational concerns including lack of automated trading workflows and complex settlement processes as reasons for the deferral.
*this image is generated using AI for illustrative purposes only.
Indian government bond yields rose on Tuesday after Bloomberg Index Services announced it would defer India's inclusion in its flagship Global Aggregate Index until mid-2026, citing operational and infrastructure concerns that disappointed market expectations.
Market Impact and Yield Movement
The 10-year benchmark government bond yield increased by 3 basis points to 6.63% following the announcement, before finding some support as traders stepped in to buy. Bond traders had been anticipating confirmation of India's entry into the index this week, which was expected to attract substantial foreign investment.
| Market Parameter: | Details |
|---|---|
| 10-Year Yield Rise: | 3 basis points |
| Current 10-Year Yield: | 6.63% |
| Expected Foreign Inflows: | $20-25 billion |
| Review Timeline: | Mid-2026 |
"Yields had softened over the last two sessions in anticipation of a favourable announcement on the 14th regarding Bloomberg index inclusion. However, the decision to defer the inclusion to mid-2026 disappointed the market, prompting traders to unwind their positions," said V.R.C. Reddy, head of treasury at Karur Vysya Bank.
Bloomberg's Operational Concerns
Bloomberg Index Services cited several infrastructure and operational issues that require resolution before India can be included in the global investment grade index. The company noted that "a number of respondents highlighted important operational and market-infrastructure considerations that merit further evaluation."
Key concerns identified by Bloomberg include:
- Current lack of fully automated trading workflows
- Settlement and repatriation timelines associated with post-trade tax processes
- Complexity and duration of fund registration procedures
- The materially broader and more operationally diverse investor base of the Global Aggregate Index
Bloomberg Index Services plans to provide the next update on this review by midyear 2026, at which time it will communicate next steps regarding potential inclusion.
Impact on State Development Loans
The disappointment from the deferred inclusion also affected state development loan (SDL) auctions, where 11 states sought to raise ₹26,815 crore. Market participants noted that expectations of foreign inflows had previously improved sentiment for demand, especially among banks and public sector entities.
After the delay announcement, traders began demanding higher cut-off yields, factoring in spreads of at least 80-85 basis points over government bonds. The expected index-related fund inflows were seen as crucial to easing the demand-supply imbalance in the bond market.
Broader Market Context
Government bond yields have remained elevated for much of 2025, despite the Reserve Bank of India cutting the policy interest rate by 125 basis points during the year. Tight liquidity conditions and rupee depreciation have weighed on demand for debt securities.
Since early December, when the central bank cut the repo rate by 25 basis points to 5.25%, the yield on the 10-year benchmark government bond has risen by almost 13 basis points. Market analysts expect weak demand and concerns about potentially higher government borrowing in the budget to keep yields in the 6.55-6.68% range.
19
