Macros to India's Aid as Yield Gap Shrinks

India-US yield gap at 22-yr low, but low inflation, deficit to help

- Shayan Ghosh & Ram Sahgal

When the gap between Indian and US bond yields shrinks, the result is often an outflow of foreign debt investments. But this time may be different.

Bond yields in the two countries are now at their closest in 22 years due to the combined effect of the Trump tariffs and a rating downgrade in the US, and rate cuts and low inflation in India. However, domestic macro stability is expected to shield India from any major outflows, experts said.

The US 10-year Treasury yield stood at 4.55% on 19 May as compared to 6.28% for the Indian counterpart, Bloomberg data showed, a gap of 173 bps. This is the smallest such gap since 14 July 2003, when the US yield stood at 3.72% and the Indian yield at 5.71%.

In the last one year, the yield differential has reduced by 93 bps. The average differential during the last 22 years was 418 bps.