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UPSC Prelims 2021 Paper-1 📅 10 Oct, 2021

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.

A
1 and 2 only
B
2 only
C
3 only
D
1, 2 and 3
Result Summary
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UPSC Prelims
2021 • 10 Oct, 2021 • Paper-1
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.
Correct Answer
1, 2 and 3
Global Triggers: The policies and rate decisions of major central banks, particularly the United States Federal Reserve, significantly impact global capital flo......
Ref/Book : UPSC Prelims 2021
Ref. Subject Economy
Chapter -
Ref. Topic Financial Markets
Pg. No -
💡 Analysis & Explanation
Global Triggers ▼
The policies and rate decisions of major central banks, particularly the United States Federal Reserve, significantly impact global capital flows. When the US Fed alters rates, foreign portfolio investors adjust their holdings in emerging markets like India, thereby directly influencing Indian bond yields. This makes point 1 correct.
Domestic Monetary Tools ▼
The Reserve Bank of India manages domestic liquidity and interest rate corridors through tools like Open Market Operations (OMOs) and repo rate adjustments. These actions manipulate the supply and demand for government securities, steering their yields. Thus, point 2 is correct.
Macroeconomic Indicators ▼
Inflation directly erodes the real return on fixed-income securities. When inflation expectations rise, investors demand higher yields to compensate. Similarly, short-term interest rates anchor the yield curve, making them a fundamental determinant of bond pricing. Therefore, point 3 is correct.
Conclusion ▼
All three factors profoundly influence Indian Government Bond Yields.
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