India-US bond yield spread narrows, prompting Uday Kotak to wonder if a historic flip is coming

Uday Kotak, founder and director of Kotak Mahindra Bank, has pointed at a subtle but potentially meaningful shift in global financial markets, as he captured the narrowing spread between the 10-year government bond yields of Indian and the USA.

The veteran banker said in a post on social media platform X that India’s 10-year bond yield stands at 6.25 percent, while the US 10-year Treasury yield is up 4.60 percent, narrowing the gap to just 165 basis points - a level described as ‘probably the lowest I recollect’.

The spread between the two benchmark yields has fallen to a more-than-two-decade low, driven largely by a spike in US yields. This surge follows growing concerns over America’s fiscal health, especially after the progress of President Trump’s tax and spending bill in Congress - a move expected to further widen the federal deficit.

Adding fuel to the rise in US yields was a poor response to a $16 billion auction of 20-year Treasury bonds, which saw tepid investor demand and led to higher-than-expected coupon rates. The US Federal Reserve’s continued hawkish stance, despite calls for rate cuts, has also heightened the cost of servicing debt, prompting investors to offload bonds and driving yields higher.