New Delhi [India], November 1 : India's 10-year government bond yields could ease to 6.75-7 per cent by March 2027, while the rupee is likely to maintain an appreciating bias amid expectations of a moderation in US Treasury yields and a weakening dollar, according to a report by SBI Research.
However, the research firm cautioned that short-term volatility could push Indian bond yields as high as 7.6 per cent, while the US 10-year Treasury yield could temporarily rise to 5.25-5.35 per cent from its current level of around 4.9 per cent.
In its latest Ecowrap report, SBI Research said US Treasury yields are expected to settle around 4.75 per cent in its most likely scenario, although elevated government borrowing requirements and an imbalance between securities supply and investor demand could keep yields above historical levels.
The firm estimated an excess supply of USD 304 billion in the US Treasury market, consistent with a fiscal deficit of 6.15 per cent of GDP. This compares with an estimated mismatch of USD 140 billion in 2015, when the US fiscal deficit stood at 2.5 per cent of GDP.
SBI Research said the US government would need to reduce borrowing or expenditure by approximately USD 100-120 billion to bring the 10-year Treasury yield towards 4.75 per cent. A further reduction of around USD 200 billion could potentially bring yields down to 4.5 per cent.
For India, the report estimated an excess supply of approximately Rs 1.52 lakh crore in the government securities market. However, government measures through bond switches and buybacks have already reduced the gross borrowing requirement by Rs 1.23 lakh crore, providing some support to bond yields.
The India-US 10-year government bond yield spread currently stands at around 250 basis points, with Indian yields at approximately 7.43 per cent and US yields at 4.93 per cent.
SBI Research said historical trends indicate that a spread of 200-300 basis points is the most plausible range. Even if the Reserve Bank of India increases the repo rate by 50 basis points to 6 per cent, Indian bond yields could remain within the projected 6.75-7 per cent range by March 2027.
The report also highlighted risks from rising debt among major US technology companies, estimating that higher yields could potentially result in USD 1.67-2 trillion in market capitalisation losses for the Magnificent Seven technology companies.