US Treasury Yields Are Rising. For India, the Spread May Matter More.
A lot is being said about rising U.S. Treasury yields.
And understandably so.
On 4 September 2026, the U.S. 10-year Treasury yield stood at 4.78%. By 25 September, it was 5.17%.
That is a rise of 39 basis points in three weeks (4 to 25 September).
But the headline yield is only the first part of the story.
Over exactly the same period, the U.S. 10-year real Treasury yield moved from 2.43% to 2.83% — an increase of 40 basis points.
That is worth noticing.
The gap between the nominal 10-year yield and the inflation-indexed (real) 10-year yield, which is the market’s breakeven inflation rate, was approximately 2.35% on 4 September and 2.34% on 25 September.
So, over this particular period, the increase in the nominal yield has occurred alongside an almost identical increase in the real yield. The simple nominal-real gap has barely changed.
In other words, it would be incomplete to describe the recent move merely as markets pricing higher inflation.
The real cost of long-term money in the world’s largest financial market has moved up materially.
What changed in the U.S.?
On 16 September, the U.S. Federal Open Market Committee raised the target range for the federal funds rate by 25 basis points to 3.75%–4.00%. The Federal Reserve’s statement also said that inflation “remains elevated”.
There was another important signal in the Federal Reserve’s September projections.
The median projection for what FOMC participants considered the appropriate federal funds rate at the end of 2026 was 4.1%, compared with 3.8% in their June projection. The Federal Reserve makes clear that these figures represent participants’ individual assessments of an appropriate policy path; they are not a commitment by the FOMC.
None of this tells us that one Federal Reserve meeting caused the entire movement in the 10-year bond.
Long-term yields reflect many things.
But it does tell us that the recent rise in long yields has taken place against a monetary-policy backdrop that has itself become firmer than was projected three months earlier.
And what happened in India?
This is where the comparison gets more interesting.
CCIL’s indicative yield for the 6.94% Government of India Security 2036, falling in its 9–10 year tenor bucket, was 6.9643% on 4 September.
On 25 September, the yield on the same security was 7.1255%.
So while the U.S. 10-year yield rose by 39 basis points, the comparable Indian 9–10 year government security moved by approximately 16 basis points.
| 4 September 2026 | 25 September 2026 | Movement | |
| U.S. 10-year Treasury | 4.78% | 5.17% | +39 bps |
| U.S. 10-year real Treasury | 2.43% | 2.83% | +40 bps |
| India 6.94% GS 2036 | 6.9643% | 7.1255% | +16.1 bps |
| India yield less U.S. 10-year yield* | 218.4 bps | 195.6 bps | -22.9 bps |
*The Indian leg is CCIL’s indicative yield for the 9–10 year bucket (6.94% GS 2036). US yields are Treasury daily par yields. Spreads are computed on unrounded values.
This is an indicative comparison. India’s market closes before the US market, and CCIL’s indicative yield is not constructed the same way as Treasury’s par yield. The direction of the change matters more than the last basis point.
The Indian yield has moved higher.
But it has not moved one-for-one with the U.S. Treasury yield.
The result is something that receives much less attention:
the observed India–U.S. long-term sovereign yield differential has narrowed by around 23 basis points during this period.
That may be the more interesting number.
The result is date-sensitive. By 30 September the US 10-year had reached 5.29% and the real yield 2.93%, and Indian 10-year yields moved to about 7.2% by 1 October.
We have seen this pattern before
This is not without precedent.
In its November 2024 Bulletin, the Reserve Bank of India noted that the 10-year Indian G-sec yield had hardened while tracking movements in U.S. Treasury yields and higher domestic headline inflation.
But RBI also observed that the increase in U.S. bond yields had been “much sharper” than the increase in Indian G-sec yields.
Consequently, the spread between the Indian 10-year G-sec and the U.S. 10-year bond had fallen to 240 basis points on 12 November 2024, from 310 basis points in mid-September.
The comparison is useful for another reason.
It reminds us not to attribute every movement in Indian interest rates to Washington.
Domestic factors continue to matter. August CPI was reported at 4.82%, markets are pricing possible RBI tightening, and the government is trimming the 10-year share of its October–March borrowing to 26.3% from 29%.
Global rates are an influence. They are not the only influence.
Why the spread deserves attention
This is where an older RBI analysis becomes particularly relevant.
In its Annual Report 2022–23, RBI examined the sensitivity of different components of India’s capital flows to interest-rate differentials.
Interestingly, for analysing external commercial borrowings, the study specifically used the difference between the 10-year Government of India bond yield and the 10-year U.S. government bond yield as the proxy for the interest-rate differential.
The study found a positive relationship between changes in interest-rate differentials and growth in gross FPI, short-term trade credit, ECB and banking-capital inflows, with a lag of one to two quarters.
But there is an equally important qualification.
RBI’s analysis did not find a statistically significant impact on India’s gross capital inflows at the aggregate level.
That distinction matters.
A narrowing of the India–U.S. yield differential should therefore not be converted into a simplistic prediction that all of foreign capital will leave India.
The RBI evidence itself does not support such a conclusion.
What it tells us is more useful: interest-rate differentials can matter differently for different forms of capital.
Portfolio money, trade credit, bank capital and ECBs do not necessarily react in exactly the same way.
The transmission is mainly financial
There is another relevant piece of RBI research.
A February 2023 RBI Bulletin article studied the transmission of U.S. monetary-policy actions to India over two decades. The authors found that, in the post-2008 period, U.S. monetary-policy shocks had transmitted to India mainly through the financial channel, by changing financial conditions and thereby affecting growth and inflation.
The article, ‘The Long Shadow of Federal Reserve’s Actions: Monetary Policy and Uncertainty Spillovers to India’, carries RBI’s disclaimer that its views are those of the authors and ‘do not necessarily represent the views of the Reserve Bank of India.
That qualification should not be missed.
But the idea provides a useful way of looking at today’s situation.
The question is not simply:
Will higher U.S. Treasury yields pull Indian markets down?
That is probably too broad a question.
A better question is:
Where does a higher global real rate enter the Indian financial system?
For businesses, this goes beyond the bond market
The first transmission can be through government yields.
The next can be through corporate borrowing costs.
RBI’s Annual Report for 2022–23 records an earlier period in which corporate bond yields hardened while tracking higher benchmark G-sec yields together with widening credit spreads.
That does not mean the same magnitude or sequence must repeat today.
But for a CFO or business owner, there is a practical reason to watch these numbers before they become headlines about borrowing costs.
A business considering an ECB needs to look beyond the foreign-currency coupon.
A business refinancing domestic debt needs to watch the local benchmark as well as its own credit spread.
A company using valuation models should be conscious that the global real-rate environment has changed.
And a business with foreign-currency exposures should not assume that a rate differential which existed six months ago will remain unchanged.
These are not trading calls.
They are balance-sheet questions.
My reading of the current move
The U.S. 10-year yield rising from 4.78% to 5.17% is important.
But, for India, I would not stop there.
During the same period:
the Indian benchmark examined here moved much less;
the India–U.S. long-term yield differential narrowed;
and the increase in the U.S. nominal yield was accompanied almost entirely by a rise in the U.S. real yield.
That combination deserves watching.
Not because it tells us where the Nifty, the rupee or Indian bond yields will go next.
It does not.
It matters because the price against which global capital evaluates risk has moved higher, while India’s relative long-term yield differential has narrowed.
For markets, that affects relative pricing.
For businesses, it should trigger a review of funding, refinancing, foreign-currency borrowing and capital-allocation assumptions.
So instead of asking:
“When will U.S. yields come down?”
perhaps the more useful question for a CFO is:
“Which assumptions in my balance sheet still depend on global money becoming cheaper?”
Because eventually, macro risk becomes business risk.
Disclaimer: Views expressed are the author’s own, based on his understanding of publicly available information, and do not represent those of any regulatory or governmental institution. Data is indicative and for information only; this is not investment, tax or legal advice.
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