FX.co ★ India 10-Year Yield Falls on Tax Relief Hopes

The yield on India’s 10-year government security eased to around 6.9%, paring recent increases as reports of potential tax relief for foreign debt investors boosted demand for sovereign bonds. Market sentiment improved on news that the government may abolish capital gains tax on foreign portfolio investments in government securities. The proposal comes as foreign investors have bought roughly $1.4 billion of Indian bonds so far this year, even as they have withdrawn nearly $28 billion from equities. It could also eliminate the existing 12.5% capital gains tax and the 20% withholding tax on foreign bond investments. However, the rally in bonds was limited ahead of the Reserve Bank of India’s policy decision on Friday, with some analysts now anticipating a 25-basis-point rate hike amid rising inflation risks. At the same time, Brent crude declined 0.9% to $96.97 per barrel after a ceasefire agreement between Israel and Lebanon, though prices stayed above $95, continuing to exert upward pressure on the inflation outlook.