2 hrs ago
US Bond Yields Rise, Creating NPS Debt Volatility
When interest rates rise, older bonds can become less valuable because new bonds offer better returns.
This can temporarily reduce the value of some investments in NPS debt schemes.
US bond yields are high, and this may put some pressure on Indian bond markets.
However, Indian bond prices are also affected by inflation, oil prices, the rupee, government borrowing and Reserve Bank of India policy.
The US Federal Reserve recently raised its policy rate.
Some economists expect the Reserve Bank of India to raise rates too, but that is not certain.
Higher yields can cause short-term losses but may allow new bonds to earn more over time.
NPS investors are generally advised to review their overall allocation periodically instead of reacting to every market movement.
The US 10-year Treasury yield reached 4.96%, while the 30-year yield stood at 5.29% on September 22.
India’s benchmark 10-year government bond yield rose above 7% for a fifth consecutive week.
Higher market yields generally reduce the prices of existing bonds, potentially causing short-term volatility in NPS debt schemes.
Indian bond yields are influenced by domestic inflation, Reserve Bank of India policy, liquidity, government borrowing, crude oil prices and the rupee.
Experts advise aligning NPS debt allocation with age, risk tolerance and retirement horizon rather than trying to time interest-rate movements.
- Who
- NPS investors, Indian bond-market participants, the US Federal Reserve and the Reserve Bank of India.
- What
- Rising US and Indian bond yields may create short-term volatility in NPS Corporate Bonds and Government Securities schemes.
- Where
- The effects are being felt across US and Indian bond markets, including Indian NPS debt portfolios.
- When
- The US 10-year yield stood at 4.96% and the 30-year yield at 5.29% on September 22; the Federal Reserve raised rates on September 16, and investors were watching the RBI’s October policy meeting.
- Why
- Higher yields generally lower the prices of existing bonds, while global capital flows, inflation, currency movements, liquidity and borrowing needs can influence Indian yields.
Key facts
- US 10-year Treasury yield
- 4.96% on September 22, close to 5%
- US 30-year Treasury yield
- 5.29% on September 22, above 5.2%
- Federal Reserve policy rate
- Raised by 25 basis points to 3.75%-4% on September 16
- Indian 10-year government bond yield
- Above 7%, after a fifth consecutive weekly rise
- India’s current repo rate
- 5.25%
- Affected NPS schemes
- Corporate Bonds and Government Securities
- Long-term implication
- Higher yields can provide better accrual opportunities for newly invested debt
- Investment guidance
- Base allocation decisions on age, risk appetite and retirement horizon rather than short-term yield movements
Quotes
Rajesh Khandagale
Senior Vice President for NPS at KFin Technologies Limited
“Higher global bond yields can create intermittent pressure on Indian bond yields; however, NPS is a long-term retirement product, and debt allocation should not be driven by short-term global market movements.”
financialexpress.com
“When market yields rise, prices of existing bonds can come under pressure, which may result in some near-term volatility in the valuation of debt portfolios.”
financialexpress.com
Sources
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