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India Bonds Will Suffer Most in Asia in a US Recession Scenario

  • Rupee yields are most sensitive to inversion of Treasury curve
  • Weakening rupee and debt outflows add to pressure on the notes

US recession risks are reverberating across the emerging Asian debt complex and nowhere is this more apparent than in Indian sovereign bonds.

Rupee debt has proven to be the most sensitive to an inversion of the US curve in the past and this time is unlikely to be different, according to a Bloomberg study which analyzed four episodes dating back to 2005. In each instance, India’s benchmark yields climbed an average 11 basis points in the 10 days before longer-term US rates fell below those on shorter-dated maturities.