Indian Rupee Strengthens and Bond Yields Drop Following US-India Trade Deal
The Indian rupee gained value on Wednesday, and the 10-year government bond yield decreased. these changes followed a new trade agreement between India and the United States. As part of the deal, the US reduced reciprocal tariffs on Indian imports from 25% to 18%.
Rupee and Bond Market Reactions
The local currency rose by as much as 1.2%, reaching 90.42 against the US dollar. At the same time, the yield on the 10-year bond dropped by five basis points to 5.71%.
President Donald Trump confirmed that the tariff reduction starts immediately following a phone call with Prime Minister Narendra Modi. Previously, India faced total tariffs of 50%, which included a 25% tax related to Russian oil purchases. However, the US Embassy stated that the total tariff rate is now 18%. This agreement is the main driver for the markets this week, with a focus on trade commitments and oil policies.
Recent Market Trends
Earlier on Monday, India’s 10-year government bond yield rose eight basis points to 6.78%, its highest level in a year. During the same period, the rupee opened 19 paise stronger. These fluctuations happened after the government announced a larger-than-expected borrowing plan in the Union Budget, which caused concerns about debt supply and market liquidity.
Additionally, reports indicated that the Reserve Bank of India (RBI) sold dollars in offshore markets to help stabilize the currency.
Background on the Trade Deal
This agreement is the result of months of discussions between New Delhi and Washington. Negotiations began in early 2025 but paused in August when the US placed tariffs of up to 50% on Indian goods. Talks started again in October.
To put the current rates in context:
- The Rupee: On August 6, before the first tariffs were announced, the rupee closed at 87.74 per dollar. It recently traded at 91.51 per dollar.
- Bond Yields: The 10-year bond yield was at 6.42% before the tariffs and was recently recorded at 6.77%.
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