Emerging Markets Bond Index

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Overview:

JP Morgan Chase & Co has announced it will include Indian government bonds to its emerging markets bond index from June 2024.

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.

Source: India to be part of JP Morgan global bond index, could get $25bn inflows