Bond Yield Slumps On Bets Of Index Inclusion

The yield on 10-year government bond fell to its lowest in eight sessions as investors rushed in after media reports pointed to progress in the inclusion of local bonds in global indexes.

The bond market rally also saw yields easing for the sixth consecutive week.

The 10-year government bond yield ended at 7.2173% after closing at 7.2929% on Thursday, posting its biggest single-day fall since Aug. 17.

The yield declined five basis points this week, after falling by 17 basis points in last five weeks. The new 10-year 7.26% 2032 bond yield closed at 7.2049%. It had ended at 7.2773% on Thursday.

"The positive talks with regards to index inclusion led to a sharp rally in prices and any further progress could see similar moves in the future," said Nandan Pradhan, deputy general manager, treasury, at Cosmos Bank.

Earlier in the day, the Financial Times reported that JPMorgan is speaking to large investors over adding India to its emerging-market bond index.

The bank is seeking investor views on whether to make a large chunk of the Indian government bond market eligible to be included in the GBI-EM Global Diversified index of local currency debt, according to the report.

Goldman Sachs had said earlier this month that it expects India to be included in global bond indexes in 2023, potentially leading to passive inflows of around $30 billion.

If Indian bonds are included in global indexes, it will widen the investor base at a time when government aims to borrow record funds through bonds to shrink a record fiscal deficit.

Similar talks of inclusion in January had attracted around 60 billion rupees ($752 million) of overseas portfolio flows into bonds that month.

So far in August, investors have bought bonds worth over 39 billion rupees on a net basis.

Market participants are also focused on Federal Reserve Chair Jerome Powell's comments later in the day at the Jackson Hole symposium, which will provide clarity on the Fed's thinking on interest rates.

Traders also await India's growth data, which is due on Aug. 31. The economy is forecast to have expanded by an annual 15.2% in the April-June quarter, thanks mainly to a weak base last year, a Reuters poll of 51 economists showed.