Context: India’s 10-year government bond yield rose to 6.94% amid rising inflation concerns and expectations of monetary tightening.
About Bond Yields:
- Definition: Bond yield is the return earned on a bond investment, expressed as a percentage of its price.
- Benchmark: The 10-year Government Security (G-Sec) yield acts as the benchmark interest rate in the economy.
- Core relationship: Bond prices and yields are inversely related; interest rates and bond prices are also inversely related → Interest rates ↑ → Bond prices ↓ → Yields ↑ (and vice versa).
- Inflation link: Higher inflation expectations lead investors to demand higher yields to preserve real returns.
- Monetary policy: Expectations of repo rate hikes or tighter liquidity push yields upward.
- External factors: Rising crude oil prices increase inflation, thereby raising yields.
- Fiscal/currency factors: Higher government borrowing and rupee depreciation can further increase yields.
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