FX.co ★ India 10Y Yield Hits 15-Week Low

The yield on India’s 10-year government security (G-Sec) has declined to around 6.71%, extending its slide to a fifteen-week low as improved domestic liquidity and lower short-term funding costs have increased demand for government bonds. Recent measures by the Reserve Bank of India to attract foreign currency inflows are expected to inject billions of dollars into the banking system, reducing banks’ dependence on higher-cost certificates of deposit (CDs) and bringing down their overall funding expenses. CD yields have already dropped by as much as 60 basis points over the past three weeks. At the same time, the spread between three-month Treasury bill yields and comparable CDs issued by state-run banks has narrowed to 140 basis points, from more than 200 basis points three months ago. Softer global yields have also lent support to the domestic bond market, with the US 10-year Treasury yield easing to 4.37% ahead of Thursday’s release of US June nonfarm payrolls data. Sentiment has been further buoyed by lower oil prices, as Brent crude trades near $72.50 per barrel, helping to temper concerns about imported inflation.