Indian Government Bond Yields are influenced by which of the following?
- 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.
Answer & explanation
Answer: (d) 1, 2 and 3
A bond's yield moves opposite to its price, and the RBI lists all three as forces that move the prices of Indian government securities (G-secs): interest rates and expected inflation at home, RBI policy actions, and developments in US Treasuries, which follow the Federal Reserve.
- ✓ 1. When the US Federal Reserve raises rates, US Treasury yields rise and foreign money can leave Indian bonds, pushing Indian yields up; the RBI notes that US Treasury developments affect G-sec prices.
- ✓ 2. RBI actions such as changing the repo rate or CRR, or buying and selling bonds in open market operations, change G-sec prices and therefore yields.
- ✓ 3. Investors demand a higher yield when expected inflation or short-term rates rise, so G-sec prices fall and yields go up.
Remember · Bond price and yield move in opposite directions. Indian G-sec yields respond to domestic inflation and interest rates, RBI policy, and global (especially US) yields.
Sources
- RBI, Government Securities Market in India – A Primer (Q13: Why does the price of G-Sec change?) ↗ “the prices of G-Secs are influenced by the level and changes in interest rates in the economy and other macro-economic factors, such as, expected rate of inflation, liquidity in the market, etc. … developments in international bond markets, specifically the US Treasuries affect prices of G-Secs in India. … Policy actions by RBI (e.g., announcements regarding changes in policy interest rates like Repo Rate, Cash Reserve Ratio, Open Market Operations, etc.) also affect the prices of G-Secs.”
Question and answer: UPSC's official GS Paper I (2021, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). ·