India 10-Year Yield Falls on Tax Relief Hopes

The yield on India’s 10-year G-Sec fell to around 6.9%, trimming recent gains as reports of tax relief for foreign debt investors lifted demand for sovereign bonds. Sentiment improved after reports that the government may scrap capital gains tax on foreign portfolio investments in government securities. The move comes as foreign investors have purchased about $1.4 billion of Indian bonds this year while pulling nearly $28 billion from equities. The proposal could also remove the current 12.5% capital gains tax and 20% withholding tax on foreign bond investments. Still, gains were capped ahead of the Reserve Bank of India's policy decision on Friday, with some analysts now expecting a 25-basis-point rate hike amid mounting inflation risks. Meanwhile, Brent crude slipped 0.9% to $96.97 per barrel following a ceasefire agreement between Israel and Lebanon, though prices remained elevated above $95, keeping pressure on the inflation outlook.

The yield on India’s 10-Year G-Sec hovered around 7%, firming after a brief stabilization as renewed Middle East tensions lifted oil prices. Brent crude rose about 1% for a third straight session to nearly $97 per barrel after US-Iran diplomatic efforts stalled and fresh regional hostilities heightened concerns. Government bonds remained under pressure as elevated oil prices and a weaker rupee reinforced expectations that the RBI may need to maintain a more hawkish policy stance. Investor attention is now on the RBI's policy decision due Friday. While most economists expect rates to remain unchanged, markets have increasingly started to price in the possibility of future tightening as policymakers grapple with rising inflation risks. Investors are also keeping an eye on substantial debt issuance, with Indian states set to raise INR 241 billion through bond sales and the federal government scheduled to auction INR 340 billion of a new 10-year 2036 bond later this week.

The yield on India’s 10-Year G-Sec hovered near 6.9%, edging lower after the holiday break on easing oil prices and softer US Treasury yields. Bond sentiment was bolstered after reports suggested the US and Iran had agreed to extend their ceasefire arrangement, easing concerns over prolonged disruptions to global crude supply. Brent crude prices have fallen sharply this week, reducing inflationary pressure for oil-importing economies such as India. Meanwhile, US Treasury yields also declined, with the benchmark 10-year yield falling further after softer inflation data reinforced expectations that the Fed may avoid additional aggressive tightening. Still, gains in Indian bonds remained limited as investors stayed cautious ahead of New Delhi’s scheduled debt auction and the RBI’s policy decision next week. Market participants increasingly expect the RBI to keep interest rates unchanged, although some foreign institutions continue to anticipate the possibility of another rate hike.