Goldman backs India 30-year bonds as inflation cools

India 30-year bonds are gaining support from Goldman Sachs as cooling inflation expectations and lower oil prices reduce perceived risks for the government’s finances.

In a note dated Saturday, Goldman analysts led by Danny Suwanapruti said the macroeconomic fallout from the US-Iran conflict has proved smaller than first anticipated. They added that the outlook improved further after an interim peace arrangement.

Goldman shifts preference to the ultra-long end

Goldman’s recommendation focuses on the “ultra-long” end of India’s sovereign curve, particularly the 30-year segment. The analysts said this part of the market should benefit as more long-dated securities are added to India’s fully accessible route (FAR), which allows foreign investors to buy certain government bonds without investment caps.

The bank argued that shorter-dated bonds have already moved significantly, limiting their relative value. According to the note, the front end has been buoyed in recent weeks by softer oil prices and by investors dropping expectations of a near-term rate hike from the Reserve Bank of India (RBI).

For bond investors, oil prices are a key variable because India imports most of its crude, making energy costs an important driver of inflation and the trade balance. Lower oil can also lessen fiscal strain by reducing subsidy pressures and containing broader price pass-through effects.

Foreign buying accelerates toward a potential record

Goldman’s call arrives as offshore demand for Indian government bonds strengthens sharply. Overseas holdings of index-eligible government debt increased by 397 billion rupees (about $4.2 billion) in June through the latest available data, according to the Clearing Corp. of India.

That rise puts June on track to become the largest monthly net purchase on record for these securities, based on the same dataset. The flow matters because foreign participation can influence auction demand, market liquidity, and the pricing of longer maturities where domestic balance sheets may be more selective.

Two policy changes helped set the stage for the jump in inflows. India removed certain taxes on debt investments by foreign buyers and widened the list of securities eligible for inclusion in bond indexes, increasing the investable universe for global funds that track or benchmark to those indexes.

What the market is signaling about rates and risk

The note’s emphasis on the 30-year tenor highlights an evolving balance between rate expectations and term premia. When investors believe the RBI is less likely to tighten policy, shorter maturities typically reprice first; longer maturities can lag until conviction builds around inflation and fiscal dynamics.

Goldman’s analysts framed the interim peace deal as an additional factor improving sentiment, especially by reducing fears of a sustained energy shock. With inflation expectations described as easing, the bank sees scope for long-duration bonds to attract incremental demand as global investors reassess risk.

Still, the attractiveness of ultra-long bonds depends on continued stability in commodity prices and the persistence of inflows linked to index eligibility. The FAR pipeline is also central: as more long-dated securities become fully accessible, foreign investors may find it easier to express views in the 30-year sector rather than crowding into shorter tenors.

Next steps for investors will likely hinge on incoming signals from oil markets, RBI communication on the rate path, and updates on eligible bond lists under the fully accessible route. Market participants will also watch whether June’s pace of foreign buying sustains into the next month or proves temporary after the recent policy-driven surge.