Indian bond market showing strength with easing inflation and expansionary policy by RBI: Jefferies

Mint

2 days ago

New Delhi [India], : The Indian bond market is showing signs of strength, driven by easing inflation and expectations of more interest rate cuts from the Reserve Bank of India , says a report by Jefferies.
The report highlighted that this environment is creating an attractive setup for domestic bonds, particularly for long-term investors in a shifting global landscape.
Consumer price inflation in India has been declining steadily. Over the last fiscal year, it averaged 4.6 per cent, and in April 2025, it fell to just 3.2 per cent, the lowest level since July 2019.
This drop in inflation is giving the RBI more room to lower interest, since then, the RBI has already cut policy rates by 50 basis points. Jefferies expects an additional 75 basis points of cuts by the end of 2025.
This rate-cutting cycle is enhancing the appeal of Indian government bonds, especially when compared to developed markets like the US.
In fact, India's 10-year rupee-denominated government bond has outperformed the US 10-year Treasury bond by 51 per cent in US dollar terms since April 2020.
Jefferies said "While the India 10-year rupee government bond has outperformed the US 10-year Treasury bond by 51 per cent since April 2020 in US dollar terms. Indeed, it is no longer unthinkable that the ten-year Indian government bond yield will trade below the ten-year Treasury bond yield"
Moreover, the strength of the Indian rupee and the performance of local-currency emerging market bonds globally are reinforcing the positive sentiment.
A key global sovereign bond portfolio tracked by Jefferies has India's 15-year bond carrying a yield of 6.38 per cent, forming the largest single-country allocation at 25 per cent of the portfolio.
This reflects continued confidence in the Indian bond market amid structural shifts away from G7 debt instruments.
Jefferies said "these bonds continue to outperform G7 government bonds, which is another sign of regime change from the Bretton Woods era, as is the growing evidence of supply concerns moving the long end of the US Treasury bond market".
Overall, with disinflationary pressures growing and real rates remaining attractive, India's bond market is well positioned to benefit from both domestic rate easing and international investor interest in emerging market debt.
As global investors look for alternatives to volatile G7 bonds, India remains a standout destination offering relatively high yields, a stable macroeconomic outlook, and the potential for currency appreciation.
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