10-year Treasury at 4.8%: should Indian investors move into US bonds?

The US 10-year Treasury yield hit 4.818% in the days after the September 16 Fed hike. That's a level not seen since late 2023 — and it's reignited a question Indian investors haven't had to take seriously in years: do US bonds belong in an Indian resident's portfolio?

The short answer is: for a specific subset of investors, yes. For most, not yet. Here's the full analysis.

What happened and why it matters

When interest rates rise, bond prices fall — existing bonds become less attractive relative to newly-issued ones paying higher yields. The 10-year yield going to 4.8% means US government bonds are now paying a real yield (above US CPI of ~3.2%) of about 1.6%. That hasn't been true for most of the 2010s or early 2020s.

For Indian investors specifically, US bonds are now offering:

• 4.8% in USD — government-guaranteed
• ~4.2–4.5% in USD for short-duration T-bills (SGOV, BIL) with near-zero duration risk
• ~5–5.5% in USD for investment-grade corporate bonds (LQD, VCIT)

The question is whether this clears the bar vs. Indian alternatives — factoring in currency, tax, and liquidity.

Can Indian residents actually buy US bonds via LRS?

Yes, fully. Under the Liberalised Remittance Scheme, Indian residents can invest in any foreign security listed on a recognised exchange — including US Treasury ETFs, bond mutual funds, and (for IBKR users) individual Treasury bonds directly.

Options ranked by accessibility:

SGOV and BIL are the cleanest options for most investors — they effectively yield Fed Funds rate minus a small spread, with near-zero price risk. TLT is a bet on rates falling; it's down significantly as rates have risen and carries substantial duration risk.

The carry math: US bonds vs. Indian FDs

The comparison Indian investors always make:

At first glance, Indian FDs win — higher pre-tax yield, taxed at slab but you get ~4.5–5% after tax in INR with zero currency risk.

But currency changes the math. The rupee has depreciated roughly 3–4% per year against the dollar over multi-decade horizons. If you add 3.5% expected rupee depreciation to the 4.5% USD SGOV yield, you get a theoretical 8% INR-equivalent return. That looks better than a 7% FD.

The catch: rupee depreciation is not guaranteed in any given year. It averages 3–4% but with high variance — in some years it's 0%, in some it's 8–10%. You're taking currency risk in exchange for the potential upside.

The realistic case for US bonds makes sense when:

1. You have a known USD expense in 1–3 years (foreign education, emigration, dollar-priced purchase). Holding USD-denominated bonds to fund a USD expense is a natural hedge.
2. You want to hold some USD assets but don't want equity volatility right now.
3. You have idle USD at your broker between vest/sell events — SGOV is better than cash earning 0%.

The realistic case against:

1. You have no USD liabilities. Your retirement spending will be in INR. A 7% Indian FD is simpler, cleaner, and doesn't require an LRS remittance.
2. You're comparing against long-duration bonds (TLT). With the Fed still hiking, long-duration bonds are risky — they lose value as rates rise further. TLT is not "safe."
3. Your investment horizon is 10+ years. Over that timeframe, US equities have historically returned far more than bonds.

Tax treatment for Indian residents

US bonds and bond ETFs held by Indian residents are taxed as follows:

Capital gains:

• Held < 24 months: Short-term capital gains, taxed at slab rate (up to 30% + surcharge + cess)
• Held ≥ 24 months: Long-term capital gains at 12.5% flat (no indexation)

Interest / dividends: Bond ETFs like SGOV pay monthly distributions. These are treated as income — taxed at slab rate regardless of holding period. This makes SGOV less tax-efficient than holding individual T-bills to maturity (where the gain is capital in nature, not income).

The most tax-efficient structure: Individual Treasury bills bought at discount and held to maturity at IBKR. The difference between purchase price and face value is capital gains, not income — taxed at 12.5% LTCG if held >24 months. This requires IBKR access and $1,000 minimum per bill.

For most investors: SGOV or BIL are fine. The tax inefficiency (income vs. capital) costs maybe 0.5–1% after-tax return. The simplicity is worth it.

Duration risk: what TLT gets wrong

TLT (iShares 20+ Year Treasury ETF) has gotten a lot of attention as "US government bonds." It's not what most investors want right now.

TLT has a duration of approximately 17 years. Every 1% rise in the 10-year yield causes TLT's price to fall ~17%. As rates went from ~4% to ~4.8% in September, TLT fell roughly 12–14%. People who bought TLT expecting "safe" government bonds got an equity-like drawdown.

If you want US Treasury exposure today without rate-risk pain:

• SGOV: 0–3 month bills, duration ≈ 0.1 years. Rate moves don't affect price meaningfully.
• SHY: 1–3 year Treasuries, duration ≈ 1.8 years. Modest rate sensitivity.
• IEF: 7–10 year, duration ≈ 7 years. Significant exposure if rates rise further.

For the October 2026 environment where one more hike is plausible: SGOV/BIL > SHY > IEF > TLT.

A practical allocation framework

If you're currently 100% US equities via LRS:

• Consider carving 10–20% into SGOV for the period until the Fed signals a pause or cut. You collect ~4.5% while waiting, with zero equity volatility. Redeploy into equities when the rate cycle turns.

If you have a USD expense in the next 1–3 years (education, emigration):

• Move that specific pool into SGOV or short-term Treasuries now. Lock in the yield, eliminate equity risk on money you'll need.

If you're building a long-term portfolio from scratch:

• Indian residents with 10+ year horizons: US equities (VTI, QQQM) remain the better long-term bet. Bonds are for your 3–5 year bucket, not your retirement account.

If you have idle USD at your broker:

• This is the easiest case. SGOV beats 0% on cash. Park it there until you decide what to do.

The FD comparison in one line

A 7% Indian FD is better than US bonds if you have no USD exposure in your life and a long time horizon. US T-bills are better than nothing on idle USD, better than equity if you have near-term USD expenses, and better than an Indian FD if the rupee cooperates.

Most Indian investors should have 70–80% of their fixed-income allocation in Indian instruments (FD, PPF, NPS debt). The case for US bonds is narrow but real for the specific cases above.

Related: Currency risk: how rupee–dollar moves change your US returns · How to invest in US stocks from India · Repatriating money from US brokerages