Tabula unveils Indian government bond ETF

Jan 31st, 2024 | By | Category: Fixed Income

European fixed income ETF provider Tabula Investment Management has launched a new fund providing investors with liquid access to Indian government bonds.

Tabula unveils Indian government bond ETF

JP Morgan will integrate India into its flagship emerging markets government bond index later this year.

The Tabula FTSE Indian Government Bond Short Duration UCITS ETF (TIND LN) has been listed on the London Stock Exchange in US dollars.

The fund has an expense ratio of 0.39%.

India, currently the fifth-largest economy and one of the world’s fastest-growing emerging markets, enjoys an investment-grade credit rating (currently BBB-) with a bond market characterized by liquidity and transparency.

Historically, though, foreign access to Indian government bonds was limited, a factor contributing to the country’s exclusion from major emerging market bond indices. This changed in 2020 with the introduction of Fully Accessible Route (FAR) bonds, making them available to international investors. FAR bonds now comprise over 20% of India’s $1.1 trillion bond market, encompassing all new issuances of 5, 10, and 30-year bonds.

This significant market opening prompted JP Morgan to announce that it would be including India in its esteemed JPMorgan Government Bond Index-Emerging Markets later this year. Tabula observes that these developments are likely to channel positive capital inflows, benefiting both Indian bond prices and the broader economy.

Stefan Garcia, Chief Commercial Officer at Tabula Investment Management, commented: “As Indian government bonds are added to global emerging market bond indices in the summer, inflows of over $35 billion are expected over the next 18 months. Our latest ETF provides a highly efficient, liquid, and transparent way to gain exposure to both the India growth story and the wave of expected capital inflows ahead of the country’s emerging markets index inclusion.”

Methodology

The fund is linked to the FTSE Indian Government Bond FAR Short Duration Capped Index which consists of investment-grade Indian rupee-denominated bonds issued by the Reserve Bank of India.

Eligible bonds must have notional amounts outstanding of at least INR 250bn ($3bn) and a remaining time to maturity between six months and five years.

Tabula observes that the yield curve of Indian government bonds has remained consistently flat at longer maturities for more than ten years. By strategically omitting long-duration bonds, the index offers a yield nearly identical to that of a broad maturity index but with substantially reduced interest rate risk – as of 30 January, the index reported a current yield of 7.09% and an effective duration of just 2.27 years.

The index contained eight bonds which were weighted by market value subject to a cap of 25% of any individual bond.

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