The situation with bond yields is causing concern worldwide, as US economic policy has a significant impact on global markets. Specifically, the continuous rise in US Treasury bond yields leads to instability in the world economy, affecting both the Indian stock market and the Indian rupee.
Simply put, government bonds represent a debt obligation that the government takes from the public or investors. When the US government needs funds, it issues special securities—bonds. These instruments are characterized by a coupon rate (a fixed interest rate on the bond) and the bond yield itself (the actual return).
There is an inverse relationship between the price of a bond and its yield: a drop in the bond's price leads to an increase in its yield. US bonds are considered one of the most reliable global assets due to guarantees from the US government. The rise in yields in such a safe market prompts global capital to leave its positions and move towards the US.
The maturity period associated with the yield indicates the period for which the government borrows funds. The ten-year yield serves as a global benchmark for the entire world economy, determining interest rates for mortgages, car loans, and corporate loans. 20-year and 30-year yields reflect long-term borrowing and are used to assess risks in areas such as pension funds, insurance companies, and infrastructure projects. A rapid rise in the thirty-year yield signals to investors a forecast of sustained high inflation and interest rates over a long period.
Currently, until October 1, 2026, yields in the US bond market have remained close to the highest levels in the last two decades. Specific figures are: the 10-year yield is 5.30%, the 20-year is 5.50%, and the 30-year is 5.62%.
In recent months, there has been a sharp increase in US bond yields. Over the last three months, yields have increased by approximately 50 basis points, and over the past year, they have risen by 60–90 basis points. The 10-year yield reached 5.30%, which was last observed in 2007 and 2002. Furthermore, the 30-year yield exceeded 5.60%, reaching a record level for the 21st century.
The main reason for the yield increase is the maintenance of high interest rates in the US, linked to the Federal Reserve's efforts to control inflation. A second significant factor is the massive US national debt, which has led to a significant increase in the budget deficit. Consequently, the government issues a record number of new bonds to cover expenses and service debt. Yield increases also occur when the supply of bonds in the market exceeds demand, leading to lower prices and an automatic rise in yields.
The rise in yields in the US has a direct negative impact on emerging markets, including India. The primary blow falls on the Indian stock market, as foreign investors withdraw capital from the Indian market and redirect it to US bonds, where they receive higher returns without risk. The increased demand for the dollar weakens the Indian rupee against the US dollar. A weaker rupee makes imports, including crude oil, more expensive, which in turn triggers domestic inflation and increases monthly loan payments.
To counter this global turbulence, India and other developing countries need to focus on three strategies. First, the Reserve Bank of India (RBI) can stabilize the excessive depreciation of the rupee using its foreign exchange reserves. Second, to ensure the stability of the Indian stock market, it is important to strengthen domestic funds and retail investors, reducing dependence on Foreign Institutional Investors (FIIs). Third, it is necessary to promote direct trade in rupees with other countries to decrease reliance on the US dollar.
Although the rise in US bond yields represents a wave of global finance, India has the potential to handle this instability thanks to its strong economic foundation and cautious monetary policy.
The Indian bond market demonstrates a relatively stable and strong position. The ten-year Indian benchmark bond trades around 7.16%, and the thirty-year is at 7.65%. The Government of India and states regularly issue government bonds (G-Secs and SDLs) to finance their needs and infrastructure construction. The RBI acts as the government's banker, managing the auctions of these bonds and setting a fixed interest rate for them.
