Indian government bond market: performance and outlook

Key takeaways:

• Indian government bonds offer higher yields than the APAC peer group, despite very low inflation rates
• Fiscal consolidation and the prospect of lower short rates gives a favourable outlook for 2026
• The upwardly sloped yield curve also offers investors duration protection
• Entry into global bond indices should help the market attract more foreign inflows

Points of differentiation:

• Our paper assesses current RBI monetary policy and shows how tight it has become, after the recent collapse in Indian inflation
• We also analyse the two-way pull on the central bank from robust Indian growth and very low inflation
• We show how the Indian govt market has cheapened relative to the peer group, using FTSE Russell govt bond index data

What does our research mean for investors?

For investors, we are able to identify the key drivers of Indian govt bond market performance in 2025, and the outlook for 2026. By doing so, we help inform their investment and asset allocation decisions.