By comparison, the rise in Indian bond yields has been relatively muted. Yields have remained within a narrow range over the past three years, unlike those in the US, Germany, Japan and the UK. This has resulted in a compression of the yield spread between India and developed markets (DMs).
Tracking the rise in US Treasury yields and crude oil prices, the benchmark 10-year government bond yield in India settled at 6.97 per cent on Wednesday.
Its previous close was 6.96 per cent. During the day, it touched the psychologically crucial 7 per cent level. The last time the benchmark yield closed above 7 per cent was on June 3.
The benchmark bond yield on Wednesday stood at 4.81 per cent in the US, 3.027 per cent in Japan, 5.24 per cent in the UK and 3.37 per cent in Germany.
The yield on the benchmark 10-year UK government bond has risen 513 basis points from its historic low, reached in July 2020, shortly after the global outbreak of Covid-19. Over the same period, the 10-year bond yield in the US has risen 428 basis points, while yields in Germany and Japan have increased by 390 and 330 basis points respectively from their historical lows.
Bond yields in Japan and Germany had moved into negative territory in 2016 and again in the second half of 2020. Yields in the US and UK, however, remained in positive territory. One basis point is one-hundredth of a percentage point.
In contrast, India’s 10-year government bond yield has risen by just 109 basis points from its post-pandemic low of 5.88 per cent in October 2020. It is up 189 basis points from its record low of 5.08 per cent in October 2003.
Over the short term, the rise in bond yields has been sharpest in Japan, followed by Germany and the UK, while Indian yields have remained range-bound.
Japan’s 10-year government bond yield has risen 138 basis points over the past year and 226 basis points over the past three years. In the UK, the yield is up 54 basis points over the past year and 80 basis points over the past three years. In Germany, the corresponding increases are 66 and 53 basis points, while in the US they are 66 and 24 basis points respectively.
In India, however, the 10-year government bond yield has risen by around 40 basis points over the past year, while it has fallen 24 basis points over the past three years.
This has led to a sharp decline in the yield, or interest-rate, differential between India and other developed markets, particularly the US, the world’s biggest bond market.
Over the past year, the spread between the Indian 10-year government bond and the US 10-year government bond has declined by 26.5 basis points, from 2.43 percentage points at the end of September last year to 2.16 percentage points on Wednesday.
The current yield spread is just above the 22-year low of 1.89 percentage points recorded in May 2025. By comparison, the spread was 2.195 percentage points at the end of August 2025 and 2.42 percentage points at the end of December 2025.
The current yield spread between India and the US is also significantly below its historical average. Over the past 10 years, the yield spread has averaged 3.95 percentage points, while the 20-year average has been 4.5 percentage points.
Analysts attribute the relatively lower rise in Indian bond yields to weaker demand for long-term capital in the country. “The long-term investment demand in India has been relatively weak, with fewer corporates raising long-term debt for capex and other long-gestation projects. In the US, however, there has been a boom in long-term investment, such as in artificial-intelligence-related projects,” said Dhananjay Sinha, co-head of research and equity strategy at Systematix Institutional Equity.
Sinha points to the eight-year period between April 2004 and May 2012, when Indian bond yields rose at a faster pace than those in the US, alongside a boom in corporate capital expenditure.
As a result, the yield spread between India’s and the US’s 10-year government bonds widened to nearly 7 percentage points, from a record low of 0.62 percentage points in April 2004.
