Prices of Indian Government Securities (G-Secs) slumped and their yields jumped on reports that JPMorgan Chase & Co. has decided to keep in abeyance the inclusion of these securities in its widely tracked emerging-market bond index. The rupee, too, felt the heat of this decision, closing 36 paise down.

The widely traded 10-year G-Sec (coupon rate: 6.54 per cent) closed 57 paise down at ₹93.80 (previous close: ₹94.37), with its yield surging about 9 basis points to close at 7.4763 per cent (7.3867 per cent). Intraday, the yield of this paper shot up about 12 basis points, with its price tanking about 84 paise.

Wait gets longer

The G-Secs have been on a watch for possible inclusion in Government Bond Index (GBI)-Emerging Markets (EM) Global Diversified Index for almost a year now. Inclusion of the securities is expected to attract tens of billions of dollars of inflows in the market. But this will have to wait till next year.

Bloomberg cited JPMorgan Chase & Co’s global head of index research, Gloria Kim’s statement: “Investors cited investment hurdles that need to be resolved, including a lengthy investor registration process and the operational readiness required for trading, settlement and custody of assets onshore.”

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said: “Some market participants had built positions on Tuesday expecting G-Secs to be included in JPMorgan’s widely tracked emerging-market bond index. But later there were reports that the inclusion may be delayed. So, market players cut their position. Moreover, crude oil went up and US 10-year treasury yield was also hardening towards the 4 per cent level. This impacted the bond markets.”

Irani noted that tomorrow’s weekly auction of G-Secs will give the market an indication as to where the yields are headed. Price of the recently issued 10-year G-Sec (coupon rate: 7.26 per cent) closed 63 paise down at ₹98.65 (previous close: ₹99.28), with its yield rising about 9 basis points to close at 7.4538 per cent (7.3621 per cent).

Rupee tumbles

Meanwhile, delay in inclusion of G-Secs in JPMorgan’s widely tracked emerging-market bond index had a ripple effect on the Rupee, which was dealt beyond 82 per dollar in after official trading hours. The rupee closed weaker at 81.88 per dollar against the previous close of 81.52. Intraday, it touched a low of 81.9050, with the RBI apparently intervening at 81.90 level.

“There was demand for dollars from nationalised banks for defence-related payments, oil marketing companies and custodial banks (for bond related outflows due to delay in inclusion of G-Secs in JPMorgan’s widely tracked emerging-market bond index),” said the chief dealer of a private sector bank.

Anindya Banerjee, VP, Kotak Securities, noted that USDINR spot closed 36 paise higher, at 81.88, 8 paise short of the all-time high in onshore. However, the fireworks in USDINR occurred post close. “USDINR in the offshore touched a fresh all time high of 82.27 on spot reference. Short covering was triggered once spot traded above 82.00 levels. Massive demand from offshore drove USDINR higher. Over the near term, bias remains upward. We expect a range of 81.60 and 82.50 on spot,” he said.