FX.co ★ Indian 10-Year Yield Extends Slump

In May, the yield on the 10-year Indian government securities dropped to under 6.25%, marking its lowest point in over three years. This decline was influenced by a ceasefire agreement between India and Pakistan, paving the way for reduced interest rates and a favorable fiscal outlook to once again capture market interest. The Reserve Bank of India (RBI), in an effort to combat a slowdown in domestic economic growth, implemented successive cuts to its benchmark repo rate after maintaining it at a four-year high of 6.5% for an entire year. Anticipation is high for further rate reductions, with the latest inflation statistics indicating a decline in price growth below the RBI's 4% target for the third consecutive month, reaching a six-year low. Additionally, the central bank has enacted several liquidity injections into commercial banks, a move necessary after its defense of the rupee depleted domestic reserves and resulted in tighter financing conditions. Meanwhile, the relatively stable rupee has prompted foreign investors to revisit their interest in Indian bonds, revitalizing foreign investments in domestic fixed-income assets, especially following their integration into funds managed by DBS and JPMorgan.