US-India yield spread, global factors may curb active flows

WITH INDIAN GOVERNMENT bonds being included in the FTSE Russell Emerging Market Index in September, several factors, including US-India yield spreads, will be key for active fund inflows, said market participants.

- Christina Titus

The current policy rate differential with the US is at 100 basis points, far below its historical average of above 400 bps, will definitely act as a deterrent in terms of capital flows," said Dipanwita Mazumdar, economist at Bank of Baroda.

Currently, the US Fed rate is at 4.5% whereas the repo rate stands at 5.5%. At the same time, while the yield on 10-year benchmark bond closed at 6.2892% on Wednesday, the same on US Treasury stood at 4.29% on Tuesday.

"Any further reallocation of capital will happen when the differential (between India and US bond yields) comes down," said Vishal Goenka, co-founder of IndiaBonds.