Sharp drop in India-US 10-year bond yield spread in past 4 yrs

Yield spread low despite rise in retail inflation in India

- KRISHNA KANT

The post-pandemic monetary tightening across the globe has resulted in a lower rise in interest rates in India compared with the United States, resulting in a sharp decline in the spread between the Indian and the US 10-year treasury bond yields in the last four years.

The spread has now shrunk to around 255 basis points or 2.55 per cent, nearly 45 per cent lower than 10-year average yield spread of 4.52 per cent. The current spread is, however, 13 basis points higher than the 18-year low spread of 2.42 per cent in October last year.

The yield on India's 10-year government bond is up just 28 basis points in the last three years from 6.45 per cent at the end of December 2021 to 6.74 per cent on Friday. In the same period, the yield on US 10-year treasury bonds is up 268 basis points from 1.51 per cent at the end of December 2021 to 4.19 per cent currently.