{"id":194804,"date":"2023-10-11T10:38:58","date_gmt":"2023-10-11T10:38:58","guid":{"rendered":"https:\/\/tokenstalk.info\/?p=194804"},"modified":"2023-10-11T10:38:58","modified_gmt":"2023-10-11T10:38:58","slug":"bond-inclusion-positive-from-long-term-perspective","status":"publish","type":"post","link":"https:\/\/tokenstalk.info\/business\/bond-inclusion-positive-from-long-term-perspective\/","title":{"rendered":"‘Bond inclusion positive from long term perspective’"},"content":{"rendered":"

‘Higher inflows into these securities should lead to lower borrowing costs for the government.’<\/strong><\/p>\n

The inclusion of government bonds in the JP Morgan emerging market government bond index (GBI-EM) will lead to a new layer of demand for government securities, resulting in lower borrowing costs for the government, says Rajeev Radhakrishnan<\/strong>, chief investment officer (fixed income), SBI Mutual Fund.<\/p>\n

In an interview on the phone with Abhishek Kumar<\/strong>\/Business Standard<\/em>, Radhakrishnan highlights that g-sec papers under the fully accessible route (FAR) will see higher demand over the non-FAR g-secs of the same duration.<\/p>\n

Did the bond inclusion come as a surprise for the markets?<\/strong><\/p>\n

It was expected. The markets were aware that during the latest round of consultation between index providers and investors, a larger set of investors favoured India’s inclusion.<\/p>\n

This is the reason why the bond markets didn’t react to some of the negative news recently, like the rise in crude oil prices.<\/p>\n

Also on Friday the yields hardly moved. This shows the inclusion was priced in.<\/p>\n

How will it benefit the government and also domestic investors?<\/strong><\/p>\n

It is positive from a long-term perspective because it adds a layer of demand for government securities.<\/p>\n

Higher inflows into these securities should lead to lower borrowing costs for the government, provided the broader macro parameters are stable.<\/p>\n

However, the impact will be limited in the near term.<\/p>\n

A lot will depend on the attractiveness of the overall emerging market.<\/p>\n

As of now, the rates are fairly attractive in the US itself with US treasury yields at over 5 per cent.<\/p>\n

The picture will change over time and the benefits of the inclusion will probably play out over the long term.<\/p>\n

Will the benefits also trickle down to the corporate bond market?<\/strong><\/p>\n

I don’t think so. Corporate bond spreads in India are anyway tight. Wherever there are pockets of demand, if at all, money should have come in.<\/p>\n

There is no direct benefit for the corporate bond market from the inclusion.<\/p>\n

Do you expect the inclusion to boost inflows from foreign active funds?<\/strong><\/p>\n

Once the passive flows start coming in consistently, active flows may also gather pace.<\/p>\n

But again it will depend largely on whether the environment is conducive for investment in emerging markets (EMs) and the attractiveness of the Indian market vis-a-vis other EMs.<\/p>\n

However, active fund flows can be erratic, leading to volatility in yields.<\/p>\n

In such a case, we will have to be prepared for such situations.<\/p>\n

FPIs are a strong force in equity markets. Now as foreign flows start to gain pace in debt, can FPIs, over a period of time, also gain control over the debt market?<\/strong><\/p>\n

Government borrowing in India is almost completely funded by domestic investors.<\/p>\n

Foreign portfolio investment ownership, which is very low right now, may go up to some extent as these inclusions take place.<\/p>\n

Such a situation can be possible but it’s too early to predict right now.<\/p>\n

At least, in the coming five years I don’t see it happening.<\/p>\n

Domestic flows will continue to determine the direction of bond yields.<\/p>\n

Feature Presentation: Aslam Hunani\/Rediff.com<\/em><\/strong><\/p>\n

Source: Read Full Article<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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