India’s fixed-income markets are currently offering one of those rare junctures where elevated yields, benign inflation, and shifting supply dynamics align favourably. If one has been considering leaning into duration, many indicators suggest now is the time. Add in signs from the U.S. that the Fed is ready to ease further — and things get even more compelling.
1. Yield cushion + stable inflation. With yields on 10-year Indian G-Secs in the mid-6.4%–6.5% range and inflation benign, real returns are attractive. There’s room for yield compression (i.e. price gains) if inflation remains under control.
2. Supply tightening at the long end. Government’s likely cut in ultra-long issuance in H2 (if executed) will help correct the adverse supply/demand imbalance. Longer end of the curve often suffers when buyers demand steep yields; reducing supply there helps stabilize yields.
3. Potential RBI support. Market expectations are rising around RBI using tools like Open Market Operations (OMO) or even something akin to an “Operation Twist” to absorb long-dated paper and reduce yield pressure. These tools, if deployed, will aid liquidity and may push long yields downward.
4. Global tailwinds from U.S. easing. The Fed appears increasingly likely to deliver further rate cuts (markets are pricing in perhaps a 75 bps further cuts in upcoming meetings ). Weak job creation, softening labor demand, and inflation trending closer to target all support this view. Lower U.S. yields tend to lead to flow into markets like India, supporting bond demand and helping keep local yields from rising unabated.
How to Position: A Suggested Strategy
- Core sovereign exposure: Focus on 10- to 15-year G-Secs. These maturities seem best placed to capture yield + potential capital gains if supply is trimmed and RBI intervenes.
- Modest bets on ultra-long (20-30 yrs) if the risk tolerance is high then entry yields are currently compelling. But size these positions carefully.
- Complement with AAA/Investment Grade corporates in the 3-7 year range to benefit from carry, while reducing duration risk.
- Keep a close eye on RBI announcements (OMO schedule, borrowing calendar) and Fed signals (non-farm payroll, inflation prints). These could be pivot points that move yields.
The Bottom Line
India is offering a fixed income moment: elevated sovereign yields, low inflation, and likely supply and policy tailwinds. Coupled with U.S. signals of labor market cooling and potential rate cuts, this environment tilts favorably toward duration. If you have the bandwidth, locking in 10-15 year G-Sec yields now could reward patient investors. Just stay nimble—and keep your radar tuned to inflation surprises and global spillovers.
The author, Chirag Doshi, is the CIO at LGT Wealth India.
Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.
