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Indonesian rupiah-denominated debt to qualify for Bloomberg's Global Aggregate Index

BLOOMBERG on Wednesday announced changes to its Bloomberg Barclays fixed income indices, which included making Indonesian rupiah-denominated debt eligible for the Global Aggregate Index.

Fifty rupiah-denominated government bonds totalling US$151.3 billion in market value as at Jan 31 will enter the Global Aggregate and Global Treasury projected universes in early May.

They will contribute to index returns starting June 1.

Bloomberg said in a statement that with effect from May, the index eligibility rules for the Global Aggregate Index will be updated as such: If the local sovereign debt of a currency is not eligible for the index, then no other securities denominated in that currency will be eligible, regardless of the securities' issue-level ratings.

As a result, 32 government-related and corporate South African rand-denominated bonds will be removed from the Global Aggregate Index's projected universe in early April. They will not contribute to the index performance in May.

Other changes included those related to the US Aggregate Index, which will continue to exclude 144A bonds without registration rights.

As of May 1, separate versions of the US Aggregate and US Credit indices will be created that include 144A credit securities (both with and without registration rights).

Bloomberg said that the changes are a result of its ongoing global index review and governance process, including client feedback from the company's Index Advisory Council meetings held in the fourth quarter last year.

In a separate report, Standard Chartered called Bloomberg's inclusion of Indonesian rupiah bonds in its Global Aggregate Bond Index a "long awaited move".

"The impact of allocation by investors tracking this index could be sizeable," the bank noted.

Standard Chartered said that the move would be positive for rupiah bonds in the medium term as it will encourage a wider set of foreign investors to participate in the rupiah bond market.

"Currently, foreign real money investors tracking popular emerging-market indices are already actively involved in Indonesian rupiah bonds. Inclusion in this index will likely prompt other investors to invest in Indonesian rupiah bonds," it said, adding that inflows are likely to come in between US$2 and US$4 billion, mainly from structural foreign investors.

In the near term, Standard Chartered expects "positive but limited impact" on rupiah bonds and the rupiah.

"So far this year, we have seen net foreign inflows of 18 trillion rupiah (S$1.7 billion), partly in anticipation of this announcement... While we do not rule out further inflows, we are neutral on current Indonesian rupiah bond valuations," it said.

"We expect limited Indonesian rupiah appreciation in the near term given market participants' positioning in anticipation of the announcement and the recent pick-up in US rates volatility. However, additional inflows in the coming months support our view of slight Indonesian rupiah appreciation as a means to contain inflationary pressure."