"Rising Global Bond Yields Signal Costlier Capital for India"
Bond yield
a bond's effective annual return at its current market price, inversely related to price
Fiscal deficit
the gap between a government's total expenditure and its total revenue, excluding borrowings
A government bond is a loan an investor makes to a government. In return, the government pays interest, called a coupon, and repays the loan at maturity. A bond's yield is its actual annual return at the current market price. Yield and price move in opposite directions. If interest rates rise after a bond is issued, its market price falls. A bondholder who sells at that lower price makes a capital loss.
Government bonds, or sovereign debt, are seen as nearly free of default risk. A government can raise taxes or print new currency (meaning: create new money) to repay what it owes. A private company cannot do either. For decades, advanced-economy bonds, especially US Treasuries, carried the world's lowest yields because investors saw them as the safest assets. Emerging economies like India had to offer higher yields to attract the same capital. This reflected their perceived higher risk.
India's own government securities, called G-Secs, are bought mainly by domestic banks, insurance firms and pension funds. These institutions invest household savings in G-Secs. Foreign investors can also buy G-Secs, within limits set by the Reserve Bank of India (RBI). The RBI manages this market through its policy rate and bond purchases. But Indian yields are not set in isolation. They respond to the US Federal Reserve's policy stance, domestic inflation, and short-term interest-rate expectations. Global capital moves toward wherever returns are higher and risk is manageable.
Three forces are pushing sovereign bond yields in the US, France and Japan to their highest levels in decades. This is unusual. It no longer clearly separates advanced-economy bonds from emerging-market bonds, as it once did.
First, developed-country governments are running persistent fiscal deficits (meaning: spending more than they earn). Ageing populations need costly pensions and healthcare. Defence budgets are rising. Voters resist tax increases or benefit cuts. Together these push up public debt. The US federal government's outstanding debt has crossed $40 trillion. Its 2026 defence budget alone touched a record $1 trillion. As investors worry about debt sustainability, they demand higher yields to keep lending. This is like a bank charging a riskier borrower more interest. …
Consider the following statements:
1.Tight monetary policy of US Federal Reserve could lead to capital flight.
2.Capital flight may increase the interest cost of firms with existing External Commercial Borrowings (ECBs).
3.Devaluation of domestic currency decreases the currency risk associated with ECBs.
Which of the statements given above are correct?
Consider the following statements:
Statement-I:
If the United States of America (USA) were to default on its debt, holders of US Treasury Bonds will not be able to exercise their claims to receive payment.
Statement-II:
The USA Government debt is not backed by any hard assets, but only by the faith of the Government.
Which one of the following is correct in respect of the above statements?
With reference to the Indian economy, consider the following statements:
1.A share of the household financial savings goes towards government borrowings.
2.Dated securities issued at market-related rates in auctions form a large component of internal debt.
Which of the above statements is/are correct?
Indian Government Bond Yields are influenced by which of the following?
1.Actions of the United States Federal Reserve
2.Actions of the Reserve Bank of India
3.Inflation and short-term interest rates
Select the correct answer using the code given below.
With reference to factors influencing government bond yields, consider the following statements:
1.Persistent fiscal deficits linked to rising social welfare and defence spending in advanced economies tend to push sovereign bond yields higher.
2.Large-scale corporate bond issuance for capital-intensive projects can compete with government borrowing and raise yields economy-wide.
3.A rise in a central bank's policy interest rate has no bearing on long-term government bond yields.
Which of the statements given above are correct?
Sovereign government bonds are generally regarded as carrying negligible default risk mainly because of which of the following?
1.The government's power to levy taxes on its citizens
2.The government's authority to issue new currency to meet its obligations
3.A standing guarantee extended by the International Monetary Fund (IMF)
Which of the statements given above is/are correct?
Consider the following statements regarding government bonds:
1.The market price of an existing bond is inversely related to the prevailing market rate of interest.
2.A bondholder suffers a capital loss if the market interest rate rises after the bond has been issued and the bond is sold before maturity.
Which of the statements given above is/are correct?
With reference to the financing of global artificial intelligence (AI) infrastructure investment, consider the following statements:
1.Large technology companies are increasingly raising debt in bond markets to fund AI-related capital expenditure.
2.Such large-scale corporate bond issuance can increase competition for investable funds, pushing up yields on sovereign bonds as well.
Which of the statements given above is/are correct?
Consider the following statements:
1.The Institute of International Finance is a Washington-based organisation that tracks global debt and capital flow trends.
2.A sustained decline in a major foreign creditor's holdings of another country's government bonds can signal a reassessment of that country's fiscal risk by global investors.
Which of the statements given above is/are correct?
Want the full note, Prelims Facts & MCQ answers?
Create a free account — takes less than a minute.
Create free account