BOND YIELDS

Subject: Economics

Context: India’s 10-year yield spikes as RBI bond-purchase results disappoint

Concept:

Bond is an instrument to borrow money. A bond could be floated/issued by a country’s government or by a company to raise funds.
The yield of a bond is the effective rate of return that it earns. But the rate of return is not fixed; it changes with the price of the bond.
Generally, investors purchase the bonds at their face value, which is the principal amount invested. In return, investors typically earn a yield of a bond.
Each bond has a maturity date, which is when the investor gets paid back the principal amount

Factors affecting the yield:

Monetary policy of the RBI (interest Rates), 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.
Rising interest rates cause bond prices to fall, and bond yields to rise.
So, a rise in bond yields means interest rates in the monetary system have fallen, and the returns for investors have declined.