In News: Government said to urge Reserve Bank to help push bond yields lower
- A bond is a debt investment.
- Corporates or governments issue bonds directly to investors, instead of obtaining loans from a bank.
- This is to raise money and finance a variety of projects and activities.
- Yield – In simple terms, yield is the amount of return that an investor will realize on a bond.
- If the investor holds the bond to maturity, s/he will be guaranteed to get the principal amount back plus the interest.
- However, a bond does not necessarily have to be held to maturity by the investors.
- Instead, investors may sell them for a higher or lower price to other investors.
- The bond prices and yields generally move in opposite directions.
- This is because, as a bond’s price increases, its yield to maturity falls.
Current Status: The yields have hit their highest since 2019, as inflation risks push foreign investors to sell bonds
How RBI controls bond yield?
- The RBI aims to keep yields lower as that reduces borrowing costs for the government while preventing any upward movement in lending rates in the market.
- Thus it controls bond yields either by buying back government bonds or conduct open market operations to cool yields
Source: The Hindu
Previous Year Questions
Q.1) Indian Government Bond yields are influenced by which of the following? (2021)
- Actions of the United States Federal Reserve
- Actions of the Reserve Bank of India
- Inflation and short-term interest rates.
Select the correct answer using the code given below
- 1 and 2 only
- 2 only
- 3 only
- 1, 2 and 3