The record increase in bond yields in America amid rising oil prices in markets around the world due to the Iran war has become a topic of discussion all over the world.
The yield of US Treasury bonds reached 5.56 percent on Tuesday last week, a record increase of 25 years. Ten-year bond yield reached 5.22 percent and two-year bond yield reached 4.86 percent.
Bond yield is the return given by the government to the investor on the loan for a specific period. The interest rate paid annually to the bondholder is called coupon rate.
It may be a matter of relief for the US government to raise long-term debt by increasing bond yields, but it is a matter of concern for the economies, investors, stock markets and businessmen of other countries of the world including American investors and businessmen.
If the bond yield in America is high then obviously investors from all over the world will be attracted to invest in it. That means investors will start withdrawing money from the world's economies and investing it here.
A big reason for this is that giving loan to the American government is considered the safest. Because it is a common belief that the US government will give full returns to its investors and will never default.
This means that all types of loans, including home loans, may become expensive across the world because lending agencies will make their loans more expensive for other governments and businesses. Because it is safer for them to give loan to the American government.
This could prove to be a crisis for other countries. Because due to this, there is a danger of debt becoming expensive in their domestic economy. Expensive debt can slow down the economy because it will further increase inflationary pressure.
Economic activities will slow down due to industries getting expensive loans. This may increase unemployment and people's spending power will reduce. Decrease in expenditure means decrease in demand in the economy. Obviously all this will lead to decline in economic growth.
This is a kind of economic vicious circle, which the world would like to avoid at any cost. Especially at a time when the whole world is facing the brunt of inflation due to two wars, Russia-Ukraine and America-Iran.
The debt of many big economies of the world is very high. America is also not untouched by this. According to the latest figures, its debt to GDP ratio is 126 percent.
According to OECD data, Italy had the highest debt among the G7 countries in 2025, which was 149 percent of its GDP. France is also not far behind with 117 percent.
The question is that despite being loaded with so much debt, why is the US government raising more debt by increasing bond yields? This is directly related to geopolitical uncertainty. Even the American government itself does not know when its war with Iran will end and whether there will be any solution to the oil crisis in the near future or not. It also has no control over the Russia-Ukraine war.
The second problem is regarding the stance of the American Central Federal Reserve. From the current situation, it does not seem that the Federal Reserve will cut interest rates so that the US government can get cheap loans.
That's why the US government is busy raising loans to avoid any future crisis, even if it means increasing yield rates.
T Rowe Price's chief US economist Ballerina Urusei told the Wall Street Journal that the bond market may remain volatile in the near term, but the yield trend is upward. According to him, there are many structural reasons for the increase in yield and these will remain the same in future also.
He says that unexpected events like Covid and war have played a role in increasing the yield to the current level. These also include increasing government debt and a surge in investment in Artificial Intelligence.
Many countries of the world are investing a lot of money in Artificial Intelligence and this money can be raised from bonds.
When the government issues bonds, it already decides how much interest it will pay on it. This interest is called coupon. But government bonds, after being issued, are continuously bought and sold in the open market. Here the price of the bond keeps changing and with it its yield also changes. Because demand keeps changing.
For example, if a $100 bond with a ten dollar coupon in the US market gives an investor $110. But if inflation increases, the bond holder will want to sell it in the secondary market because due to increased inflation the real value of $10 will reduce.
The bond holder would like to sell it and invest the money somewhere else where he can get higher returns. But the bond buyer will also not want to buy it at $100 because inflation will reduce his returns.
Suppose now its price drops to $90. But the coupon rate will remain the same i.e. its return on less investment will be higher. This means that even if a bond is bought at $90, it will still get a return of only ten dollars as it would have if it was bought at $100. In this way the yield of the bond increases as compared to the fall in its price.
The Indian stock market is currently facing many crises. By Thursday, the stock market had been in decline for eight consecutive weeks. This happened for the first time in the last 25 years.
According to an estimate, in this week alone Rs 20 lakh crore of midcap companies sank in the Bombay Stock Exchange. On Friday, investors lost Rs 6 lakh crore in a single day.
The Indian stock market is continuously weakening due to selling by foreign institutional investors, increase in US bond yields, increase in crude oil prices and fall in the rupee.
When bond yields rise, pressure on the stock market usually increases. Because fixed-income investments are more attractive than volatile investments. Investors move towards risk-free returns for higher and safer returns.
“Yields are likely to remain high with increased US government borrowing and bond issuance,” Avinash Gorakshkar, founder and principal researcher at Avinash Mentor Research, told Live Mint.
"This is also negative for the Indian stock market, as foreign institutional investors may find US fixed-income assets more attractive and may deploy less capital in emerging market stocks. Hence, higher bond yields for a longer period may put pressure on the Sensex and Nifty."
At the same time, Sugandha Sachdeva, founder of SS WealthStreet, told Live Mint that when investors start getting higher returns in US government debt, they also demand higher returns for investing in emerging market stocks.
Due to this, foreign investors may reduce their investments in India, especially when the valuations of shares are already high and there is less scope for weak earnings results of the companies. He said that this pressure increases further due to high prices of crude oil and weak rupee. India is a big importer of crude oil.
