India-US 10-Year Bond Yield Gap Hits 22-Year Low
Why in the news
The yield difference between Indian and US 10-year bonds fell to a 22-year low, yet capital has not left India.
Key facts
| Measure | Value |
|---|---|
| India 10-year yield (May 19, 2025) | 6.28% |
| US 10-year yield | 4.55% |
| Gap | 173 bps, lowest since July 14, 2003 |
| 22-year average gap | 418 bps |
| Narrowing in one year | 93 bps |
Why no outflow
- India has low inflation, an improving fiscal deficit and a stable rate regime.
- FPI flows: 2022 net outflow $2 billion; 2023 net inflow $8.29 billion; 2024-25 net inflow $13.3 billion.
Yield drivers
- US: yields jumped on Trump’s reciprocal tariffs and Moody’s downgrade from Aaa to Aa1; range 4.79% (January high), 3.99% (April low), about 4.55% (May).
- India: steady thanks to anchored inflation, no aggressive fiscal loosening and institutional confidence amid index inclusion.
Bond basics
- Bond price and yield move inversely; the coupon is fixed, so secondary-market prices adjust to prevailing rates.
- Rising rates push prices down; falling rates push them up.
- Prices also reflect issuer credit quality, time to maturity and demand-supply; longer terms carry more rate risk.
Exam angle
- 1 bps = one-hundredth of a percentage point.
- Yield gap: 173 bps vs average 418 bps.