The yield on the 10-year G-Sec fell to below 6.8%, dropping sharply from the five-month high of 6.9% touched on January 14th, tracking the drop in yields in credit markets with exposure to the US amid expectations of looser monetary policy by the Fed this year. Even though markets also expect the RBI to deliver cuts this year, other domestic developments limited demand for Indian debt. Slowing growth reduced confidence in New Delhi's fiscal strength, lastly evidenced by FY2025 GDP growth slowing to 6.4% from 8.2% in the previous year, according to a preliminary estimate. Additionally, the RBI’s looser grip on its crawling rupee peg limited the appeal of Indian assets. The combination of higher risk premium and rupee weakness drove foreign investors to close positions on Indian debt, which have previously soared through late 2024 due to the inclusion of Indian government bonds on fixed-income funds by JPMorgan and other major asset managers.
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