Long-duration Indian government bond funds lost appeal for investors as the benchmark 10-year yield spiked above key psychological levels amid global rate pressures and domestic fiscal concerns.
Fund managers reported outflows from gilt funds holding securities with maturities of 10 years or more, as rising yields translate into capital losses on existing holdings. Bond prices move inversely to yields, making long-duration portfolios especially vulnerable during tightening cycles.
Reuters cited sources saying the Reserve Bank of India does not currently favor rate hikes to support the rupee, but market pricing still reflects some probability of tightening later in 2026. Standard Chartered economists projected potential hikes as soon as June, with 50 basis points split between June and August policy meetings.
Fixed-income advisers recommended shortening duration exposure until the RBI’s June 5 policy statement provides clearer guidance. Indonesia and the Philippines have already raised rates to defend their currencies, while India has deployed other tools including dollar sales and potential non-resident deposit schemes.
India’s 10-year benchmark yield movements affect borrowing costs for the central and state governments, which rely heavily on gilt auctions to finance fiscal deficits. Mutual fund investors shifted toward shorter-duration debt schemes as expectations of eventual rate hikes increased following global central bank actions.
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Sources:
https://www.business-standard.com/markets