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.