Note4Students
From UPSC perspective, the following things are important :
Prelims level: Government Bond Index-Emerging Markets (GBI-EM)
Mains level: Not Much
Central Idea
- In a groundbreaking development, JPMorgan has announced the inclusion of Indian government bonds in its Government Bond Index-Emerging Markets (GBI-EM), slated to commence from June 2024.
- This decision could pave the way for substantial inflows of billions of dollars into local currency-denominated government debt.
What is Government Bond Index-Emerging Markets (GBI-EM)?
Definition | An index that tracks the performance of government bonds issued by emerging market countries.
It reflects the returns of local-currency-denominated sovereign bonds. |
Purpose | To provide a benchmark for measuring the performance of emerging market government bonds, helping investors assess the attractiveness of these bonds for investment. |
Issuer | J.P. Morgan |
Components | Includes government bonds issued by various emerging market countries.
The composition may change over time based on eligibility criteria. |
Coverage | Covers a broad range of emerging market countries and their local currency government bonds.
Different GBI-EM indices may have specific regional or maturity focuses. |
Currency | Denominated in the local currencies of the respective emerging market countries. |
India’s inclusion in GBI-EM
- Long-Awaited Discussion: India’s consideration for inclusion in global indexes began in 2013. However, limitations on foreign investments in domestic debt impeded progress.
- Fully Accessible Route (FAR): In April 2020, the Reserve Bank of India introduced select securities exempt from foreign investment restrictions through the “fully accessible route” (FAR), rendering them eligible for inclusion in global indexes.
- Index-Eligible Bonds: Currently, there are 23 Indian Government Bonds (IGBs) with a combined notional value of $330 billion that meet index eligibility criteria, according to JPMorgan.
- Investor Support: Approximately 73% of benchmarked investors voted in favor of India’s inclusion in the index, marking a significant endorsement.
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