Source: Imarticus Learning
The Indian bond market is experiencing significant growth, supported by easing inflation and a friendly monetary policy from the Reserve Bank of India (RBI). As per Jefferies, a global financial firm, the growth is making Indian bonds more conducive to investment prospects, particularly for the long-term investors.
Inflation Declines, Allowing RBI to Cut Rates
Inflation has continued to decline in India. It averaged 4.6% in the last financial year, and dropped to 3.2% in April 2025. That is the lowest rate since July 2019.
With inflation in check, the RBI has reduced interest rates by 50 basis points already this year. Jefferies expects the central bank to reduce policy rates by a further 75 basis points before the end of 2025.
Lower interest rates make it cheaper for the government and companies to borrow. Meanwhile, they will boost the values of existing bonds, making them more attractive to investors.
Indian Bonds Beat US Treasuries
Jefferies says “While the India 10-year rupee government bond has outperformed the US 10-year Treasury bond by 51 per cent since April 2020 in US dollar terms. Indeed, it is no longer unthinkable that the ten-year Indian government bond yield will trade below the ten-year Treasury bond yield”
This solid performance demonstrates that investors are becoming increasingly confident in Indian bonds. Jefferies even argues that Indian bond yields could soon be lower than US Treasury yields, which was previously unthinkable.
Foreign Investors Take Interest
The report mentions that one of the largest global bond portfolios has just over 25% of its assets in India’s 15 year government bond at a yield of 6.38%. This is the largest allocation to any country in the portfolio.
With a strong Indian rupee and good performance across emerging market bonds overall is also increasing the interest from foreign investors.
Shift Away from G7 Bonds
Jefferies said “these bonds continue to outperform G7 government bonds, which is another sign of regime change from the Bretton Woods era, as is the growing evidence of supply concerns moving the long end of the US Treasury bond market”.
The report describes this shift as a sign of change in the global bond market, alluding to a departure from established practices dating back to Bretton Woods.
Conclusion
All the factors—a low inflation print, falling interest rates, and the burgeoning interest of foreign investors—are playing into India’s bond market. The ongoing positive returns, stable economy and the much-discussed currency stability are definitely making India a base for investors looking at government bonds. As markets globally remain shaky, investors are standing behind India as a stable option.
