What’s going on here?
In the final trading session of 2024, Indian government bond yields dipped, with the benchmark 10-year yield closing at 6.7597%. Meanwhile, US Treasury yields climbed, spurred by revised Fed rate cut expectations for next year.
What does this mean?
India’s 10-year bond yield saw a significant drop of 42 basis points this year, the largest decline in four years. This contrasts sharply with the US, where the 10-year Treasury yield rose by nearly 70 basis points in 2024, marking the fourth consecutive year of increases. This divergence comes as the US Federal Reserve delays anticipated interest rate cuts, settling on a modest 50 basis points reduction for 2025. In India, attention is on the upcoming debt supply, with significant borrowings anticipated. The Indian government plans to release 220 billion rupees of benchmark bonds, and the bond market is closely watching any further easing from the Reserve Bank of India, especially if fiscal policies remain supportive.
Why should I care?
For markets: Tracking the yield curves.
With India expected to boost its borrowing by 60% early in 2025, understanding bond market dynamics is crucial. The demand-supply balance has been favorable, and analysts predict further bond yield easing, potentially aligning with RBI’s rate-cutting cycle. Conversely, rising US yields reflect a cautious stance due to tempered Fed rate cut expectations, highlighting differing monetary pathways and impacting global fixed-income strategies.
The bigger picture: Bond yields and global fiscal strategies.
The divergence in bond yields between India and the US highlights broader economic narratives. As India maintains fiscal prudence, allowing space for potential rate cuts, the US faces persistently high yields amid a more reserved fiscal stance. These shifts underline varying economic conditions and policies affecting global fixed-income investors’ decisions and the broader market outlook moving forward.