JPMorgan to track Indian bond liquidity after new investor curbs

JPMorgan Chase & Co. will intensify its monitoring of liquidity for longer-term Indian debt included in its emerging market bond index following regulatory actions to exclude future issuances of these bonds from eligibility.

If there are insufficient secondary market quotes or complaints from clients, the Wall Street bank may reconsider the inclusion of these notes in the index, according to a source familiar with the bank’s internal discussions. The source, who requested anonymity, indicated that the bank will also closely observe notes with maturities of 14 and 30 years.

This week, India surprised investors by restricting sales of new securities with these maturities, a month after being added to JPMorgan’s flagship index. This move suggested government concerns over the volume of inflows into the government debt market.

JPMorgan has not commented on India's restrictions on foreign investment in some new debt issues. When asked by Bloomberg News about whether specific bonds are under increased scrutiny, a spokesperson for the bank declined to comment.

India's addition to the index marks a significant milestone for its financial market, expected to draw billions in investment. JPMorgan had removed Russian bonds from its indexes following the Ukraine invasion and announced India's inclusion last September, despite New Delhi's resistance to tax changes that would have eased debt trading on platforms like Euroclear.

The liquidity checks for India are not unique; JPMorgan has taken similar measures in other Asian markets, including Thailand, the Philippines, and Malaysia. The Philippines was removed from the index due to declining liquidity, according to the source.

JPMorgan also declined to comment on actions taken in other countries.

Bloomberg Index Services Ltd. will incorporate some Indian bonds into its emerging market local currency index starting next year. Bloomberg LP, the parent company of Bloomberg Index Services Ltd., manages indexes that compete with those from other providers.

Indian government bond yields are expected to decline in early trades on Friday, following a further drop in U.S. Treasury yields. However, the decline may be limited before new debt is issued via the weekly auction.

A trader from a private bank noted that the benchmark 10-year yield is expected to fluctuate between 6.89% and 6.93%, compared to its previous close of 6.9166%. The trader mentioned potential buying pressure at the market's opening, possibly pushing the yield to 6.90%, but major fluctuations are unlikely as the focus remains on supply.

U.S. Treasury yields fell on Thursday, with the 10-year yield reaching a six-month low during Asian trading hours on Friday. This decline was driven by concerns over the U.S. economy following a surprising drop in manufacturing data, raising fears that the Federal Reserve might be lagging in rate cuts. Earlier this week, Fed Chair Jerome Powell indicated that price pressures were easing and suggested that a "rate cut could be on the table" at the September meeting.

Investors have now priced in about 85 basis points of rate cuts for 2024, with a 32% chance of the first cut in September being a 50 basis point reduction, according to the CME FedWatch tool.

New Delhi aims to raise ₹220 billion ($2.63 billion) through bond sales, including green bonds and a 30-year paper. Earlier this fiscal year, a green bond sale was canceled due to investors bidding at higher yields.