If one has been considering leaning into duration, many indicators suggest now is the time. Add in signs from the U.S. that the Fed is ready to ease further - and things get even more compelling.

What's Happening: Numbers & Signals

• Inflation remains grounded. India's retail CPI rose to around 2.07% YoY in August 2025 (up from ~1.6% in July), yet still well within the Reserve Bank's comfort zone. Food inflation is negative; core pressures are modest. Monsoon forecasts remain largely positive, helping with food supply stability.
• Growth is robust. Q1 FY26 GDP came in at ~7.8% YoY, buoyed by household consumption, services, and government capital expenditures. While momentum might moderate in H2, which means there may be a need for further policy support.
• Borrowing & supply dynamics are changing. Government borrowing via dated securities in H1 has been heavy (~ ₹8 lakh crore), but plans for H2 aim for a lighter issuance (~ ₹6.8 lakh crore). Notably, there are talks of trimming ultra-long maturities in favour of more mid-long (10-15 year) paper, in response to investor resistance and weaker demand at the long end.

• Fed & U.S. labor market signal easing. In August, U.S. non-farm payrolls rose by only 22,000, considerably below expectations. The unemployment rate held at ~4.3%, with little improvement in job creation since April. Meanwhile, benchmark revisions show the U.S. added 911,000 fewer jobs over the past year (through March 2025) than earlier reported. These suggest the U.S. labour market is cooling. Inflation, while still above 2%, has eased in certain measures and is widely expected to retreat further.

Why Duration Looks Especially Attractive Now

Here's the thesis:

1. Yield cushion + stable inflation. With yields on 10-year Indian G-Secs in the mid-6.4%-6.5% range and inflation benign, real returns are attractive. There's room for yield compression (i.e. price gains) if inflation remains under control.

2. Supply tightening at the long end. Government's likely cut in ultra-long issuance in H2 (if executed) will help correct the adverse supply/demand imbalance. Longer end of the curve often suffers when buyers demand steep yields; reducing supply there helps stabilize yields.

3. Potential RBI support. Market expectations are rising around RBI using tools like Open Market Operations (OMO) or even something akin to an "Operation Twist" to absorb long-dated paper and reduce yield pressure. These tools, if deployed, will aid liquidity and may push long yields downward.

4. Global tailwinds from U.S. easing. The Fed appears increasingly likely to deliver further rate cuts (markets are pricing in perhaps a 75 bps further cuts in upcoming meetings ). Weak job creation, softening labor demand, and inflation trending closer to target all support this view. Lower U.S. yields tend to lead to flow into markets like India, supporting bond demand and helping keep local yields from rising unabated.

What to Watch Out For (Risks)

• Food or fuel price sparking inflation unexpectedly.
• Global inflation or energy shocks that ripple into India, especially via crude imports.
• Fiscal slippage: if deficit pressures force the government to issue more long-term debt than currently planned, or if revenue misses force added borrowings.
• Sudden foreign outflows if global risk aversion spikes (e.g. US policy surprises or geopolitical risk).

How to Position: A Suggested Strategy

• Core sovereign exposure: Focus on 10- to 15-year G-Secs. These maturities seem best placed to capture yield + potential capital gains if supply is trimmed and RBI intervenes.
• Modest bets on ultra-long (20-30 yrs) if the risk tolerance is high then entry yields are currently compelling. But size these positions carefully.
• Complement with AAA/Investment Grade corporates in the 3-7 year range to benefit from carry, while reducing duration risk.
• Keep a close eye on RBI announcements (OMO schedule, borrowing calendar) and Fed signals (non-farm payroll, inflation prints). These could be pivot points that move yields.

The Bottom Line

India is offering a fixed income moment: elevated sovereign yields, low inflation, and likely supply and policy tailwinds. Coupled with U.S. signals of labor market cooling and potential rate cuts, this environment tilts favorably toward duration. If you have the bandwidth, locking in 10-15 year G-Sec yields now could reward patient investors. Just stay nimble-and keep your radar tuned to inflation surprises and global spillovers.

The author, Chirag Doshi, is the CIO at LGT Wealth India.

Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.