India’s index-eligible bonds set for best performance in a year

The Indian government bonds eligible for inclusion in the JPMorgan Chase & Co. index look poised to deliver their best monthly returns in nearly a year, helped by fresh foreign inflows and a record central bank payout.

The so-called Fully Accessible Route notes, which have no restrictions for foreigners, returned 1.3% in May so far, according to a Bloomberg index. If that result holds, it would be the best monthly performance since April 2023.

With China’s economy in the doldrums, foreign investors are turning their attention to India, whose government securities are due to join the US bank’s flagship emerging market debt gauge in June. Foreign inflows into the FAR notes have resumed in recent days, Clearing Corporation of India Ltd. data show.

A record 2.1 trillion rupee ($25.2 billion) central bank dividend payout to the government, which is set to amplify its fiscal cushion, is also supporting the market. The yield on the benchmark 10-year bond is set to drop for a fifth straight week, the longest falling streak since August 2022.

“We continue to see IGBs as attractive, especially given imminent bond index inclusion and in the wake of the recently announced record RBI dividend to the government,” Barclays Plc analysts including Sebastian Vargas and Mitul Kotecha wrote in a note on Friday.

“However, we are cognizant of the fact that yields have already dropped sharply over the recent weeks in line with our expectations and there may be better value in swaps,” the Barclays analysts added.