Goldman Sachs recommends going long INR 30-year bonds

Overview

This report focuses on the Emerging Asia FX and rates market. Its core view is that India's macro environment is improving, recent RBI FX and capital inflow measures have increased the ease of foreign allocation to Indian government bonds, and the probability of India being included in the Bloomberg Global Aggregate Index is rising. Based on this, Goldman Sachs recommends going long INR 30-year bonds, arguing that ultra-long yields have structural room to decline.

Core views

First, India's growth resilience is stronger than expected, with Q1 real GDP rising 7.8% year-over-year, supported by strong investment and services activity; Goldman Sachs raised its CY26 real GDP forecast by 0.3 percentage points to 6.8% and its FY27 forecast by 0.4 percentage points to 6.5%. Second, lower oil prices and falling urea prices help ease inflation and fiscal subsidy pressures; Goldman Sachs lowered its CY26 core inflation forecast to 4.2% and CY27 to 4.0%. Third, measures by the RBI and the Indian government reduce operational frictions for foreign investment in Indian G-Secs and expand the FAR universe, which is favorable for eligibility for inclusion in global bond indices. Fourth, after ultra-long bonds entered the FAR universe, investability improved, while the front end has already rallied significantly due to lower oil prices and reduced expectations of RBI rate hikes, making the long end of the curve more attractive.

Analysis framework

The report argues for the trade opportunity across several dimensions, including macro growth, inflation, fiscal pressure, policy measures, index inclusion conditions, foreign inflow potential, and yield curve structure. It also combines the FAR bond universe, potential Global Aggregate Index weight, and historical allocation trends to assess improving supply-demand dynamics for India's ultra-long sovereign bonds.

Methodology notes

• Macro fundamentalsGrowth-Inflation-Fiscal three-factor framework

  Uses GDP growth, oil prices, and subsidy pressure to assess the macro support for Indian rates.

  Stronger-than-expected growth improves macro resilience, while lower oil and urea prices reduce inflation and fiscal pressure, thereby supporting local-currency duration assets.

• Policy and flowsIndex inclusion and foreign accessibility analysis

  Assesses how market-access factors such as taxation, FAR scope, settlement, and custody affect index inclusion and passive capital inflows.

  RBI measures reduce operational frictions for foreign investment in G-Secs, while the expansion of FAR improves the investability of long-end bonds and increases the likelihood of India's inclusion in the Global Aggregate Index.

• Yield curveSegmented curve allocation

  Compares risk-reward between the front end and the ultra-long end.

  The front end has already rallied noticeably due to lower oil prices and reduced rate-hike expectations, while ultra-long bonds are supported by FAR expansion and long-term demand from insurers and pension funds, making their allocation value more compelling.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• INR 30-year Indian government bonds

  Core recommended asset

  Strengths

  An improved macro backdrop, lower oil prices, FAR expansion, potential index inclusion, and rising demand from long-term investors all support lower yields.

  Weaknesses

  Long duration makes it sensitive to rising global rates and deteriorating risk sentiment.

  Comparison

  Compared with front-end bonds, the front end has already more fully priced in lower oil prices and reduced expectations of RBI rate hikes, while the ultra-long end is better supported by structural demand and FAR expansion.

  Risks

  If global duration sells off sharply, the Fed turns more hawkish, or India's domestic inflation and fiscal pressures rise again, yields may move higher and hit the stop-loss.

• INR rates market

  Bullish rates direction

  Strengths

  Easing inflation expectations, lower fiscal pressure, improved foreign access, and a higher probability of index inclusion.

  Weaknesses

  The market needs time to digest the new policies, and the pace of actual foreign inflows remains uncertain.

  Comparison

  Within Emerging Asia rates markets, Goldman Sachs assigns a Bullish view to Indian rates.

  Risks

  Global rate shocks, a rebound in Indian inflation, or renewed expansion of fiscal subsidy pressures.

• INR and Indian FX assets

  Beneficiary direction of improving macro and capital flows

  Strengths

  RBI FX measures are aimed at attracting capital inflows, and improved external and inflation conditions in India help support sentiment.

  Weaknesses

  FX performance is still affected by the US dollar trend, global risk appetite, and the pace at which capital inflows materialize.

  Comparison

  In the Asia FX outlook table, the report assigns India FX a Bullish rating, consistent with its Bullish view on Indian rates.

  Risks

  A stronger US dollar, lower-than-expected foreign inflows, or worsening global risk appetite could weaken INR performance.

Key data

• Recommended tradeLong INR 30-year bonds; entry 7.34%, target 6.90%, stop-loss 7.65%The report lists this trade in the open trades table, with an initiation date of 26-Jun-26.
• India Q1 real GDP7.8% year-over-year growthAbout 50bp above Goldman Sachs' forecast, mainly driven by investment and services activity.
• CY26 real GDP forecastRaised by 0.3 percentage points to 6.8%Reflects stronger Q2 growth tracking than previously expected and a lower oil price forecast.
• FY27 real GDP forecastRaised by 0.4 percentage points to 6.5%The macro outlook has improved versus before.
• Core inflation forecastCY26 lowered to 4.2%, CY27 lowered to 4.0%Lower oil prices reduce the risk of further increases in retail fuel prices.
• Potential Global Aggregate Index weightAbout 0.7%Estimated based on the current stock of FAR bonds and newly added bonds.
• Potential passive inflowsAbout US$15 billionIf India is included in the Bloomberg Global Aggregate Index, this could occur during the phased inclusion period.
• Total size of FAR bond tableINR 5,186.7 billion, about US$54.9 billionThe table shows the outstanding amount of bonds under the Fully Accessible Route.

Impact & implications

If Goldman Sachs' view plays out, India's ultra-long sovereign bond yields could decline structurally, making INR duration assets more attractive relative to other Asian rates markets. Expectations of index inclusion could also bring passive inflows, improving foreign participation and long-end bond demand. However, the trade remains exposed to risks such as a global duration sell-off, a more hawkish Fed, or a renewed rise in India's inflation or fiscal risks.

Risks

• A sharp global duration sell-off, especially if the Fed adopts a more hawkish stance, could push up emerging-market bond yields.
• A renewed rise in India's domestic inflation risks could weaken the momentum for lower yields.
• A renewed increase in India's fiscal pressure, especially from energy or fertilizer subsidies, could be unfavorable for long-end bonds.
• The timing or outcome of Bloomberg Global Aggregate Index inclusion could disappoint expectations, potentially resulting in lower passive inflows than estimated.
• It may take time for RBI policy measures to be fully implemented in market practice after announcement, leaving uncertainty around the pace of improvement in foreign participation.

What to watch

• Bloomberg Indices' mid-year decision on whether India will be included in the Global Aggregate Index.
• The actual implementation details of the RBI and Indian government capital inflow measures announced on June 5 and feedback from foreign investors.
• Changes in foreign investor holdings after the addition of new 15-year, 30-year, and 40-year G-Secs to FAR.
• Changes in India's oil prices, retail fuel prices, core inflation, and fertilizer subsidy pressure.
• The Fed policy path and moves in global long-end rates.
• Allocation trends toward ultra-long sovereign bonds by India's long-term institutional investors, such as insurers, pension funds, and provident funds.