What rise in bond yield means for investors and govt

Rising yields on government securities or bonds in the United States and India have triggered concern over the negative impact on other asset classes, especially stock markets, and even gold.

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The yield on 10-year bonds in India moved up from the recent low of 5.76% to 6.20% in line with the rise in US yields, sending jitters through the stock market, where the benchmark Sensex fell 2,300 points.

Bond yield is the return an investor gets on that bond or on a particular government security.

The major factors affecting the yield is the monetary policy of the Reserve Bank of India, especially the course of interest rates, the fiscal position of the government and its borrowing programme, global markets, economy, and inflation.

A fall in interest rates makes bond prices rise, and bond yields fall — and rising interest rates cause bond prices to fall, and bond yields to rise.

In short, a rise in bond yields means interest rates in the monetary system have fallen, and the returns for investors (those who invested in bonds and govt securities) have declined.

The yield on 10-year bonds in India moved up from the recent low of 5.76% to 6.20% in line with the rise in US yields, sending jitters through the stock market, where the benchmark Sensex fell 2,300 points last week.

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