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India-U.S. Bond Yield Gap Hits Record Low at 1.60%, Raising Key Questions

The narrowing spread, driven by rising U.S. yields and falling Indian yields, prompts debate over the conditions for a potential inversion and its global implications.

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Bond market reality check: 'Microsoft, Apple, and NVIDIA are bigger than India’s market', expert says
Will we one day see Indian yields lower than US? Uday Kotak sparks macro rethink
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Overview

  • India's 10-year bond yield stands at 6.20%, while the U.S. 10-year Treasury yield is at 4.60%, marking the narrowest gap on record at 1.60%.
  • The U.S. Treasury yield rise is fueled by inflation concerns, fiscal strain, delayed Federal Reserve rate cuts, and weak demand, with Moody's recently downgrading the U.S. debt outlook to 'negative.'
  • Indian yields are declining due to moderated inflation, disciplined government borrowing, and increased foreign inflows tied to global bond index inclusion.
  • Experts suggest that for Indian yields to fall below U.S. levels, India would need to sustain lower inflation, reduce fiscal deficits, stabilize the rupee, and deepen its bond market.
  • A potential yield inversion would challenge the U.S. Treasury's status as the global risk-free benchmark, signaling a shift in investor perceptions of risk and stability.