The hole between Indian and US 10-year bond yields has narrowed to its lowest level in over twenty years, shrinking to 164 foundation factors (bps) as US bond yields surged amid fiscal deficit considerations. In line with Bloomberg knowledge, that is the smallest unfold since July 28, 2004, when it stood at 135 bps. At the moment, the Indian 10-year benchmark bond yield is 6.2496%, whereas the US 10-year Treasury yield is 4.5866%.
Nonetheless, Akshat Shrivastava, Founder and CEO of Knowledge Hatch, famous in a put up that whereas India’s fairness market has turn into globally engaging, its bond market stays in its infancy when in comparison with world requirements.
Explaining the distinction, Shrivastava mentioned the full dimension of India’s bond market—together with each authorities and company bonds—is roughly $2.5–3 trillion, which is lower than the market cap of a single US tech firm. In contrast, the US bond market is valued at over $50 trillion, making up almost 40% of the worldwide bond market.
He highlighted that Microsoft ($3.24 trillion), Apple ($2.97 trillion), and NVIDIA ($2.78 trillion) are every larger than India’s whole bond market.
“Corporations like Microsoft, Apple and NVIDIA, EACH are larger than India’s whole bond market.
– Microsoft: $3.24 trillion
– Apple: $2.97 trillion
– NVIDIA: $2.78 trillion
India’s bond market is 5% that of US’s bond market. We do not compete,” Shrivastava wrote on X.
He added the US cash managers don’t even consider India, as India. They lump India with rising markets (EMs). And, make their choices: whether or not to place cash in EMs or keep in developed markets. Then comes the 2nd layer of dialogue: how a lot fairness vs bond break up to do. This is determined by their studying of macros.
In line with market analysts, a narrowing unfold between the yields of presidency bonds in several international locations could immediate overseas traders to withdraw their investments from Indian markets. This phenomenon sometimes happens when the yield differential diminishes, main overseas traders to repatriate funds again to their house international locations from rising economies.
So when world asset managers make allocation choices, India not often seems as a standalone alternative. As an alternative, it’s grouped right into a broader EM basket with international locations like Brazil, Indonesia, and South Africa.
“Lengthy story quick: we’re not competing with the U.S. Our markets aren’t deep sufficient or massive sufficient,” Shrivastava concluded.
In a separate put up earlier immediately, Uday Kotak, Founder and Director of Kotak Mahindra Financial institution, flagged a major shift within the world bond panorama: the shrinking unfold between Indian and U.S. 10-year bond yields.
Kotak famous that this represents a pointy compression within the historic yield differential between the 2 international locations. Traditionally, Indian bonds have provided a lot greater yields to compensate for greater inflation, sovereign danger, and forex volatility. However this narrowing hole alerts shifting dynamics in world capital flows and investor sentiment.
Kotak added that additional convergence—or perhaps a reversal—in yields would rely on broader macroeconomic modifications:
“It relies upon primarily on relative inflation, danger premium, belief, and liquidity, for world and home traders in these two international locations,” he mentioned.
This, he instructed, may very well be an indication of India’s maturing economic system and enhancing macro fundamentals, which can be reshaping how traders understand danger and return in rising markets.
