The portfolio has an average yield of 6.97%, with the Indian allocation offering a 7.38% yield. Brazil’s 10-year bonds have a 14.10% yield, while China’s five-year bonds offer 1.40% and Singapore’s 10-year debt 2.45%.
The India allocation comes against a backdrop of sharp increases in developed-market bond yields. Jefferies noted that the US 10-year Treasury yield had reached 5.34%, while the 30-year yield touched 5.69%, their highest levels since April and May 2002, respectively. The report said the move reinforced its view that G7 government bonds have entered a structural bear market following a decades-long bond bull market.
Jefferies global sovereign bond portfolio
| Market | Government bond | Maturity | Yield | Portfolio allocation |
|---|---|---|---|---|
| India | Indian rupee | 15-year | 7.38% | 25% |
| China | Renminbi | 5-year | 1.40% | 20% |
| Singapore | Singapore dollar | 10-year | 2.45% | 25% |
| Brazil | Brazilian real | 10-year | 14.10% | 30% |
| Total / Average | — | — | 6.97% | 100% |
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Emerging-market bonds outperform G7 debt
Jefferies also highlighted the relative performance of emerging-market local-currency government bonds. The Bloomberg Emerging Markets local-currency government bond index has outperformed the Bloomberg G7 government bond index by 59% since March 2020, according to the report.
Its own global sovereign debt portfolio has also generated stronger returns than the G7 benchmark over the period. Jefferies said the portfolio gained 2.9% in the September quarter in US-dollar total-return terms, compared with a 2.7% decline in the G7 government bond index. Year-to-date, the portfolio was up 4.8%, while the G7 index was down 4.2%.
Since its launch on March 26, 2020, the portfolio has risen 39.8%, compared with a 19.4% decline in the G7 government bond index, the report said.
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India’s role in the sovereign strategy
The inclusion of Indian 15-year government securities gives India a significant place in Jefferies’ sovereign debt strategy at a time when the report is highlighting the relative performance of emerging-market local-currency bonds.
The allocation places Indian government debt alongside China, Singapore and Brazil in a portfolio consisting entirely of local-currency government bonds. The report does not provide a specific rationale for the 25% India allocation, so the figure should be viewed as a portfolio positioning detail rather than a standalone forecast on Indian bond returns.
For India, the key takeaway is that long-duration rupee government bonds form one-quarter of Jefferies’ global sovereign portfolio, with the 7.38% yield making the allocation a notable component of the strategy.
DO READ: Fixed income outlook: Why fund managers see opportunity in Indian bonds at current yields
