Overseas buyers shift to sub-five-year Indian debt as yields rise and inflation concerns delay expected policy easing.
Foreign investors increased holdings of short-duration Indian government bonds, with notes maturing in under five years accounting for over two-thirds of top purchases from March to May. This marks a shift from January-February, when such bonds made up less than half of overseas buying.
Indian bond yields climbed in the last three months, driven by inflation fears tied to energy shocks from the Iran conflict. The 10-year benchmark yield rose 34 basis points from March to May, while the five-year yield surged 55 bps, narrowing the spread to an eight-month low of 15 bps.
Analysts cite expectations of a policy shift toward tighter monetary conditions, though the Reserve Bank of India is widely anticipated to hold rates steady at its June meeting. Shorter-duration bonds are seen as offering better risk-adjusted returns amid rising rate uncertainty.