Yields on Indian government bonds rose on Tuesday after Bloomberg Index Services deferred their inclusion in its flagship Global Aggregate Index due to operational issues, dashing hopes of imminent foreign inflows and souring market sentiment.
Bond traders had been expecting confirmation of India’s entry into the index this week, a move that was expected to attract foreign inflows of $20-25 billion into government debt. Instead, Bloomberg said it would continue reviewing Indian bonds and provide its next update only by mid-2026, prompting a widespread position unwinding across the market.
“…a number of respondents highlighted important operational and market-infrastructure considerations that merit further evaluation before inclusion in a flagship global investment grade index,” Bloomberg Fixed Income Indices said in a press release.
These considerations include 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, it said, adding that the Global Aggregate Index represents a materially broader and more operationally diverse investor base.
“BISL (Bloomberg Index Services Ltd) plans to provide a further update on this review by midyear 2026, at which time we will communicate next steps regarding potential inclusion,” it said.
Government bonds remained under pressure throughout the day, with the 10-year benchmark yield rising by 3 basis points (bps) to 6.63%, before finding some support as traders stepped in to buy. One basis point is one-hundredth of a percentage point.
“Yields had softened over the last two sessions in anticipation of a favourable announcement on the 14th regarding Bloomberg index inclusion. However, the decision to defer the inclusion to mid-2026 disappointed the market, prompting traders to unwind their positions,” V.R.C. Reddy, head of treasury at Karur Vysya Bank, said.
Bond yields and prices move in opposite directions: when yields rise, bond prices fall, and vice-versa.
With the expected index-related fund inflows failing to materialize, which were seen as crucial to easing the demand supply imbalance, yields hardened by around 3 bps, Reddy said.
The investor disappointment also spread to the state development loan (SDL) auctions, where 11 states sought to raise ₹26,815 crore. According to market participants, expectations of foreign inflows had earlier improved sentiment for demand especially among banks and public sector entities.
However, after the delay in inclusion was announced, traders began demanding higher cut-off yields, factoring in spreads of at least 80-85 bps over government bonds.
Government bond yields have remained elevated for much of 2025, despite the Reserve Bank of India cutting the policy interest rate by 125 bps during the year, as tight liquidity conditions and rupee depreciation weighed on demand for debt. In fact, since early December when the central bank cut repo rate by 25 bps to 5.25%, yield on the 10-year benchmark government bond has risen by almost 13 bps.
Weak demand and concerns that the budget may provide for higher borrowing are likely to keep yields in the 6.55–6.68% range, Reddy said.
