IFA Global Weekly Outlook #1

17 August, 2025

Global & Domestic Markets Update: Yields in Focus

Global bond markets experienced mixed movements this week, reflecting shifting expectations regarding fiscal policies and macroeconomic indicators.

In the U.S., the 10-year Treasury yield inched up 3 basis points to 4.32%, while the 2-year yield slipped 2 basis points to 3.75%, indicating a modest steepening of the curve. Across Europe and the UK, benchmark 10-year yields surged between 7–13bps, underscoring market concerns around inflation persistence and higher-for-longer interest rates. Japan’s 10-year yield also rose 8bps to 1.56%, its highest level in recent weeks, as the Bank of Japan continues its slow pivot away from ultra-loose policy.

Back home, the Indian 10-year G-sec closed 1bp lower at 6.40%. Interestingly, the yield had touched 6.51% earlier in the week amid expectations of fiscal support for sectors impacted by Trump’s tariff announcements. However, optimism following a sovereign rating upgrade by S&P helped cool yields back down. On the credit side, 10-year AAA PSU spreads are hovering around 52bps, while 10-year AAA NBFC spreads stand at 77bps, reflecting relative stability in corporate bond risk premiums.

Rates in the OIS (Overnight Indexed Swap) market showed little movement, with the 1-year OIS closing 1bp higher at 6.51% and the 5-year OIS flat at 5.67%. Meanwhile, foreign portfolio investors (FPIs) have turned net buyers, infusing USD 1.1 billion into Indian debt so far in August—signaling improving investor sentiment towards domestic fixed income.

Overall, the interplay between global yield movements, domestic policy expectations, and credit spreads continues to define the market tone, with FPIs offering a supportive backdrop for Indian debt markets.