Indian government bond yields dropped sharply in the last four days, with the benchmark 10-year yield falling 0.10 per cent, as foreign portfolio investor (FPI) inflows picked up after the government's recent tax relief measures for debt investments.
According to the data compiled by PTI, the 10-year benchmark bond yield eased to 6.911 per cent on Wednesday, from 7.024 per cent on June 3.
Money market experts attributed the easing yields on government securities to heavy inflows of Rs 11,026.331 crore in the last four days by foreign investors in these securities under the Fully Accessible Route (FAR). FAR allows non-resident investors to invest in specified Government of India dated securities without any investment ceilings.
"Indian bond market has rallied following the slew of measures announced by the RBI and the Government to attract foreign capital. The benchmark 10 year G Sec yield has softened by nearly 0.10 per cent since the FPI tax exemption announcement, supported by strong foreign participation and increased flows into FAR securities," said V Ramachandra Reddy, head treasury at The Karur Vysya Bank.
Inflows by foreign investors started after the government on June 5 promulgated an ordinance amending the Income Tax Act to provide tax exemption on interest income and capital gains arising from the sale, exchange or transfer of government securities held by FPIs. The exemption is applicable retrospectively from April 1, 2025.
The move came as the government looked to attract more foreign capital into the domestic debt market and support the rupee amid external pressures.
Further, the Reserve Bank of India (RBI) announced a slew of measures in the June monetary policy to attract foreign capital to India, including expanding the universe of securities available under the FAR by including all new issuances of 15-year, 30-year and 40-year tenor government securities.
An Ecowrap report from SBI's Economic Research Department said the central bank's recent measures are likely to help India attract USD 55-65 billion in inflows in the current fiscal, stabilise the rupee, and push the country's balance of payments into surplus, said an SBI research report.
The RBI's February and June 2026 measures should be viewed as a coordinated attempt to stabilise the rupee, deepen the domestic debt market, attract more stable foreign capital and reduce friction for external funding, the report added.
