New Delhi, Oct. 6 -- The gap between Indian and US 10-year government bond yields has narrowed to around two percentage points, near its lowest level in about two decades. However, a sharp reduction in the inflation differential between the two economies suggests India may be able to sustain a lower yield premium over US Treasuries, according to a Jefferies India Equity Strategy report.

"India's rate premium compressed vs. US," Jefferies said, noting that India's 10-year government security yield has risen by around 50 basis points over the past two months alongside the rise in global bond yields.

The India-US bond yield gap is closely watched by global investors as it influences the relative returns and risks of investing in the two ma...