There’s over-reliance on rating agencies
has one of the larger and more liquid bond markets in Asia. But compared to the size of outstanding bonds, trading is limited. Liquidity is concentrated in a few benchmark G-secs. Portfolios hold cash causing a drag on yields.
Illiquidity means traded prices are not readily observable. Different participants (banks, mutual funds, provident funds, etc.) use different valuation models. Incorrect marking to market itself can be deterrent to trading. Another reason for illiquidity is the preponderance of private placements with a buy and hold approach, as is the lack of market makers who provide liquidity in global markets. Market makers also usually provide bond buyers with research. Their absence means an over-reliance on rating agencies. Equities offer a stark contrast. Brokers provide primary coverage (e.g. data) while asset managers focus on more value-added secondary analysis.
Four years ago, the Economic Survey called for a bond-currency-derivative nexus comparable to equity market levels. Alas too little has been done in that direction so far.