Indian bond market shines amid falling inflation: Jefferies

Mumbai, May 31 The Indian bond market is showing strong performance as inflation continues to ease and expectations grow for further interest rate cuts by the Reserve Bank of India (RBI), according to a report by Jefferies.

Inflation in India has been coming down steadily. Over the last financial year, average inflation was 4.6 per cent, and in April 2025, it dropped to just 3.2 per cent -- the lowest level since July 2019.

This has given the RBI more flexibility to cut interest rates to support economic growth. So far, the central bank has already reduced policy rates by 50 basis points, and Jefferies predicts another 75 basis points of cuts by the end of 2025.

These developments have made Indian government bonds more attractive, especially to long-term investors.

In comparison to bonds from developed markets like the US, Indian bonds are currently offering better returns, the report said.

Since April 2020, India's 10-year government bond, which is denominated in rupees, has outperformed the US 10-year Treasury bond by 51 per cent in US dollar terms.

Jefferies noted that it is no longer unrealistic to think that the yield on India's 10-year bond might fall below that of the US 10-year Treasury bond.

The strength of the Indian rupee and the solid performance of emerging market bonds are also boosting investor confidence.

One global sovereign bond portfolio that Jefferies tracks now has India’s 15-year bond as its largest holding, making up 25 per cent of the portfolio.

The bond currently yields 6.38 per cent -- reflecting continued faith in India's fixed-income market as investors begin shifting away from G7 government debt.

Jefferies added that Indian bonds are continuing to outperform G7 government bonds, which could signal a broader shift in the global financial system away from traditional powerhouses like the US and Europe.

With inflation falling and real interest rates still attractive, India’s bond market appears well placed to benefit from both domestic rate cuts and growing global interest in emerging market debt, the report added.

For international investors looking to move away from the volatility of G7 bonds, India stands out as a promising option, offering high yields, a stable economy, and the possibility of currency gains, the report mentioned.

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