Bond Yields Inch Up As Bloomberg Excludes India’s G-Secs In Its Global Index, For Now

Bloomberg Index Services (BISL) said that India’s government bonds (G-secs) will not be included in its Global Aggregate Index, for now, saying an update will be provided in mid-2026. Bond market participants were hoping for an inclusion of Indian bonds in the index, and the disappointment led bond yields to rise.

The 10-year benchmark G-sec was trading at 6.63 per cent today, nearly 3 basis points higher than the close before the announcement and rising nearly 5 bps from lows of at the beginning of the week. Market participants said that while the immediate reaction in the bond market was not significant, the lack of inclusion could impact bond yields over the next year, especially as domestic institutional investors remain tepid in their bond investments.

“….A number of respondents highlighted important operational and market-infrastructure considerations that merit further evaluation before inclusion in a flagship global investment grade index. These considerations include, among others, the current lack of fully automated trading workflows, settlement and repatriation timelines associated with post-trade tax processes, and the complexity and duration of fund registration procedures,” BISL said in a note, reasoning the decision to postpone the inclusion.

The decision comes against the backdrop that Indian bonds have steadily found their way into major emerging-market indices, such as the JPMorgan Emerging Market Local Currency Index, which included India bonds in June 2024. The Bloomberg Emerging Market Local Currency Bond Index also included India’s bonds in January 2025, and the FTSE Russell Emerging Market Index included them in September 2025.

“G-sec yields are likely to remain range-bound between 6.50 per cent and 6.75 per cent until mid-2026 review by Bloomberg,” Abhishek Kumar, a Securities and Exchange Board of India-registered investment advisor (Sebi-RIA), said.

“…If operational infrastructure issues such as automated trading workflows and settlement procedures are addressed by then (there are chances of inclusion by the next review),” he added.

Market participants said that the overall sentiment in the bond market has been dull, on fears that the government will have to increase its gross borrowing in the upcoming financial year, which begins in April. This is to manage the high bond redemption pressure around Rs. 5 lakh crore for the central government, as well as to maintain the fiscal deficit below 4.4 per cent, as overall tax collections are expected to slow down due to rationalisation in GST rates.

Additionally, institutional investors such as banks face trouble as deposits lag credit growth, and as a change in rules for investments limits investments in bonds. Tight rupee liquidity conditions in the banking system also add to the factor, despite the Reserve Bank of India continuously conducting open market operations (OMOs) to buy bonds from the market.

Overall, in 2026, bond yields are expected to move sideways, as most see the RBI’s rate easing cycle near its end, with a bumper 125 bps cut in the repo rate delivered in 2025. But most participants were hoping for a positive with the Bloomberg bond index inclusion to trigger some inflows from foreign portfolio investors (FPIs). Now that Bloomberg has deferred the inclusion, FPI flows into India’s bond markets could remain sloppy, they said.

Long-Term Yields Seen Intact; Short-term Bonds To Be In Pressure

Market participants were of the view that long-duration bond yields could remain intact as their yields have already risen to highs and as demand from long-term investors, such as insurance, remains firm during the final quarter of the financial year. Market participants were of the view that since the rate cut cycle is seen near its end, the yield-carry trade, which gives higher yields in long-term bonds compared to shorter tenure bonds, was a better-suited strategy, especially since confidence in Indian bonds in the long run remains intact.

Some participants also look to invest in other higher-yielding bonds, such as state bonds and top-rated corporate bonds. Meanwhile, shorter tenure bonds are expected to remain more under pressure, especially due to tepid investments from banks and mutual funds.

Experts are expecting the gross supply of bonds to be on the higher side in FY27, to the tune of around Rs. 30 lakh crore, including G-secs and state bonds. They will also keep a watch on the announcements in the upcoming Union Budget on February 1, regarding the fiscal consolidation aims or any update on debt-to-GDP goals.

“As we look ahead to Budget 2026, retail and bond investors alike are keenly focused on fiscal consolidation and credible deficit guidance,” Saurav Ghosh, Co-founder, Jiraaf, an online bond investment platform, said.

“If retail investors are not looking to invest and hold the G-Secs till maturity, then I would advise them to invest via gilt funds as managing the interest rate risk would be difficult for them on an individual basis,” Kumar said.