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A synchronised sell-off in government bonds has driven sovereign yields in major economies to multi-year highs.
Japan's 10-year yield moved above 3 percent for the first time since 1996, Germany's reached its highest since 2011 and UK gilt yields hit a post-2008 peak.
The drivers are heavy sovereign debt issuance, an oil-price shock that has revived inflation, and expectations that policy rates stay higher for longer.
India's benchmark 10-year government bond yield has been pulled up with them, raising the cost of fresh borrowing.
Higher yields in advanced markets also tend to pull foreign portfolio investment out of emerging markets, pressuring the rupee.
A bond's face value and coupon are fixed at issue. When selling drives its market price below face value, the same fixed coupon represents a larger percentage of what the buyer paid, so the effective return - the yield - rises.
Simple Analogy: The same rent on a cheaper flat is a higher rental yield.
GS Paper III > Indian Economy > Mobilisation of resources, growth and government budgeting
General Awareness > Financial Markets > Government securities, yields and monetary policy
General Awareness > Economy > Basic concepts of bonds and interest rates
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.
Answer: 1, 2 and 3
In India, which of the following can trade in Corporate Bonds and Government Securities? 1. Insurance Companies 2. Pension Funds 3. Retail Investors Select the correct answer using the code given below:
Answer: 1, 2 and 3
The effective annual return on a bond, calculated against its market price rather than its face value.
The fixed periodic interest payment set at the time a bond is issued and unchanged thereafter.
The sovereign yield against which all other borrowing in an economy is priced, so corporate rates move with it.
Investment in financial assets such as shares and bonds without control over the issuer; it responds quickly to yield differentials.