Bond yields on the 10 year benchmark have been rising consistently in the last 1 year. In fact, if one were to look at the 5 year chart, the last 1 year shows a clear bias towards higher bond yields on the 10-year benchmark. What do rising bond yields mean and is rising bond yields good or bad? Consider the chart of Bond yield to maturity below..

An indication of the end of the rate cutting cycle
Monetary Policy

The real reason could be the sharp rise in CPI inflation

Globally, bond yields have been inching up in the last 1 year

In a way the weak dollar has been responsible for the rising bond yields in the US. When the US dollar weakens investors in US bonds earn lower because part of the yield on bonds is lost due to the weaker dollar. This reduces the demand for US bonds and it results in a fall in bond prices. This takes up the bond yields to compensate for the weaker dollar. Since the US bond yields sets a benchmark for global bonds we have seen bond yields in other markets also follow suit.

Bonds were probably the easiest asset to bet on in the last 30 years. Now experts like Bill Gross are already indicating that the 30-year bull market in bonds may be about to finally come to an end. That has led to unwinding in bonds bringing down the prices and taking up the yields

Not just the US Fed but other central banks like the ECB, BOE and the BOJ are also looking at putting checks on liquidity. As liquidity tightens, the bond yields could automatically harden and that is being reflected in global bond yields.

Lastly, growth is finally coming back to the world economy. There is a clear growth recovery in the EU and Japan. The US is expected to grow at 2.7% this year while the IMF expects the world economy to grow at 3.9%. That means inflation is coming back and the rate cut cycle may be finally over. That is an important trigger for bond yields to rise.

The Indian markets are interconnected with the global bond markets through the flow of funds and yield spreads. Globally and domestically, the easy money in bonds may be coming to an end. That is, perhaps, what the rising bond yields in the Indian context are actually indicating. Bond fund managers need to aggressively tweak their bond strategies in the coming year!