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Restrictions On Bond Purchases

INDIA
EM BulletHomepagemarkets-real-timeBulletEmerging Market News

Yesterday’s shock announcement that bonds with a 14-year and 30-year tenor will no longer be categorised under the Fully Accessible Route for Foreign investors has drawn a muted response thus far.

  • The announcement came just one month after India’s inclusion in the JPMorgan Flagship Emerging Market benchmark bond index.
  • Benchmark inclusion was a decade long period of negotiation between Indian authorities and JPMorgan, with negotiations centred on access to investors.
  • The news to exclude access came as a surprise and raises questions as to the commitment of Indian authorities.
  • Authorities overnight moved quickly to justify the move stating that the purpose of the restrictions is to concentrate demand by investors in bonds with less than 10-year maturity.
  • Authorities suggest that this should make the yield curve more flexible.
  • However, this move appears more likely focused on dampening outflows should there be a global withdrawal of capital.
  • For global bond investors, these restrictions are significant and will create caution in their approach to allocating capital to India.
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Yesterday’s shock announcement that bonds with a 14-year and 30-year tenor will no longer be categorised under the Fully Accessible Route for Foreign investors has drawn a muted response thus far.

  • The announcement came just one month after India’s inclusion in the JPMorgan Flagship Emerging Market benchmark bond index.
  • Benchmark inclusion was a decade long period of negotiation between Indian authorities and JPMorgan, with negotiations centred on access to investors.
  • The news to exclude access came as a surprise and raises questions as to the commitment of Indian authorities.
  • Authorities overnight moved quickly to justify the move stating that the purpose of the restrictions is to concentrate demand by investors in bonds with less than 10-year maturity.
  • Authorities suggest that this should make the yield curve more flexible.
  • However, this move appears more likely focused on dampening outflows should there be a global withdrawal of capital.
  • For global bond investors, these restrictions are significant and will create caution in their approach to allocating capital to India.