Bond Yields

In News: Government said to urge Reserve Bank to help push bond yields lower

Bond

• 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.

Bond Yield

• 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)

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

1. 1 and 2 only
2. 2 only
3. 3 only
4. 1, 2 and 3