India's benchmark 10-year government bond yield eased in early trade on June 4 following reports that the government may eliminate capital gains tax on foreign portfolio investors (FPIs) investing in government securities (G-Secs). The benchmark yield was trading at 7.0143%, lower than its previous close, reflecting positive sentiment in the bond market.

The proposed tax reform is intended to make Indian sovereign debt more attractive to overseas investors at a time when the country is seeking to deepen foreign participation in its bond market. Market participants believe the move could significantly improve post-tax returns for foreign investors, thereby increasing capital inflows into government securities.

The development comes after India's inclusion in major global bond indices, which has already led to a steady rise in foreign investment in domestic debt markets. Removing capital gains tax could further enhance India's competitiveness relative to other emerging markets and support sustained demand for government bonds.

Lower bond yields generally indicate higher demand for bonds, as investors anticipate improved market conditions and stronger foreign participation. Increased foreign inflows could also help lower government borrowing costs and support broader financial market stability.

The proposal is still under consideration, and no formal announcement has been made by the government. However, the reports were sufficient to trigger a positive reaction in the bond market, with traders expecting the measure to provide an additional boost to foreign investment in India's fixed-income assets.