Emerging Markets Bond Index

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Why in news?

India’s local bonds will be included in the Government Bond Index-Emerging Markets (GBI-EM) index of the JP Morgan.
It is expected to reach the maximum weight of 10 per cent in the GBI-EM Global Diversified Index (GBI-EM GD).

About Emerging Markets Bond Index:

It is a benchmark index for measuring the total return performance of international government and corporate bonds issued by emerging market countries that meet specific liquidity and structural requirements.
Emerging market bonds are debt instruments issued by developing countries, which tend to carry higher yields than government or corporate bonds of developed countries.
Total 23 Indian Government Bonds (IGBs) with a combined notional value of $330 billion are eligible.
All fall under the category of “fully accessible” for non-residents.

Advantages of this inclusion

This move promises increased demand for the Indian rupee, potentially buffering against depreciation.
Lower borrowing costs can fuel essential infrastructure projects.
Increased liquidity may foster more efficient trading conditions.

Q1) What are Debt instruments?

These are financial instruments that represent a loan made by an investor to a borrower, typically a government or a corporation. These instruments are widely used in the financial markets as a means for entities to raise capital, and they provide investors with a regular stream of income in the form of interest payments.