Asian Fixed Income: An Update On The Indian Bond Market

by: S&P Dow Jones Indices

By Michele Leung

As of June 5, 2017, the yield of Indian sovereign bonds as tracked by the S&P BSE India Sovereign Bond Index stood at 7.03% - the second-highest sovereign bond yield among the Pan-Asian countries, following that of Indonesia at 7.09%. The yield of the S&P BSE India Sovereign Bond Index climbed 19 bps YTD as of the same date, though it was still at a seven-year low (see Exhibit 1). RBI has cut rates six times since January 2015.

Indian sovereign bonds currently represent 70% of the overall Indian bond market. Their total market value expanded five-fold to INR 52.7 billion in the past 10 years, outpacing the growth of the corporate bond market, which doubled to INR 24.2 during the same period. Among corporate bonds, the biggest sector was financials, which represented 9% of the S&P BSE India Bond Index, while other sectors like services, utilities, and industrials contributed around 1% to the overall market.

Although the S&P BSE India Bond Index jumped 13.22% in 2016, Indian bonds have been lagging other Pan-Asian countries in 2017; the index advanced only 1.71% YTD as of June 5, 2017. Looking at the risk/return profile in Exhibit 2, all indices have consistently delivered solid returns in the range of 8-10%. It is interesting to note that the S&P BSE India Corporate Bond Index had lower risk than sovereign bonds during all periods studied; this could probably be explained by the Indian corporate bond characteristics, which are relatively fragmented and less liquid than the sovereign bonds.

Exhibit 1: Yield-to-Worst of the S&P BSE India Sovereign Bond Index

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