Source: Refinitiv Data spans from September 03, 2016, to September 03, 2026
- India’s 10-year government bond yield is around 6.96%, while the US 10-year Treasury yield is around 4.78%, trading at spread of ~218 basis points. The spread has narrowed sharply over the decade leading to steady compression in yield differentials.
- That makes Indian debt more sensitive to movements in US Treasury yields and global risk sentiment. If US yields continue to rise while Indian yields stay broadly range-bound, the spread could compress further making Indian bonds less attractive for foreign investors. The yield gap remains one of the key considerations for foreign investors, as narrowing of spreads reduces the return cushion available after accounting for currency and emerging-market risks.
- The spread had widened significantly during the Covid-19 pandemic period by more than ~500 basis points, driven by ultra-low US yields. Since then, the narrowing trend has been largely led by a sharp rise in US bond yields. In contrast, India’s bond yields have remained relatively stable over the past few years in the range of 6.5% - 7%, limiting the yield differential. Therefore, the narrowing yield differential appears to be driven primarily by higher US yields, amid persistent inflationary pressures and fiscal concerns, rather than by any significant yield movement in Indian bonds.
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