India’s 10-year government bond (G-Sec) yield slipped to about 6.74%, a fifteen-week low, as record foreign inflows into government securities lifted demand following new tax incentives for overseas investors. Appetite for Indian debt strengthened after the government scrapped capital gains and interest income taxes for foreign investors in sovereign bonds under the Fully Accessible Route (FAR) and expanded the list of FAR-eligible securities.
These policy changes triggered record monthly foreign purchases of INR 418 billion in June, nearly twice the previous high of INR 239 billion set in August 2024. Yields were further pressured lower by reported Reserve Bank of India intervention in the foreign exchange market, conducted via state-owned banks to shore up the rupee.
Analysts warned, however, that the pace of inflows could moderate if global financial conditions tighten and US interest rates stay elevated. Even so, stronger foreign participation is seen as bolstering India’s prospects for inclusion in the Bloomberg Global Aggregate Index, with Goldman Sachs estimating potential passive inflows of around USD 15 billion.
