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India bond yields extend fall, traders cite foreign banks as buyers

MUMBAI, Aug 17 (Reuters) - Indian government bond yields extended their fall on Wednesday, amid likely purchases from foreign banks after Goldman Sachs said it expects inclusion of Indian bonds in global bond indices in 2023. The benchmark 10-year government bond yield IN065432G=CC was at 7.1825% as of 0700 GMT. It had fallen to 7.1719% earlier in the day, after closing at 7.2894% on Friday. Indian fixed income markets were shut on Monday and Tuesday for holidays. "Sentiment was already supported due to lower oil, but after the report, foreign banks have gone more aggressive in adding bond positions," a trader with a primary dealership said. Goldman Sachs analysts Danny Suwanapruti and Santanu Sengupta said the inclusion of government bonds could lead to passive inflows of around $30 billion. "If India is included into the GBI-EM Global Diversified, we think it will enter at the 10% weight cap, which could prompt around USD 30bn of passive inflows (as a one-off stock adjustment over the scale-in period), helping India to finance its fiscal and current account deficit," the reported dated Aug. 16 stated. Talks over any positive development in index inclusion had gathered steam in January, ahead of India's annual budget, although issues with regards to taxation poured cold water on discussions. The Goldman Sachs report stated that while being able to settle on Euroclear is preferred by investors, it was not a hard criterion. Indonesia and Chinese government bonds are also listed GBI-EM Global Diversified index despite being not being part of the Euroclear settlement system. "Adding India, which is a large, deep and a high-yielding market, would help to diversify the index as well as boost the average yield of the overall index. Such a move should be beneficial to various stakeholders," the report stated. Bond yields had dipped earlier in the session as Brent crude oil prices LCOc1 dropped, while India's consumer inflation INCPIY=ECI eased to 6.71% in July, falling for the third month in a row. India imports bulk of its crude oil requirement and falling oil prices could lead to lower inflation. (Reporting by Dharamraj Lalit Dhutia; Editing by Neha Arora) ((Dharamrajlalit.dhutia@tr.com)) The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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