Bond Yield
When a bond’s price goes up, its yield goes down. That seesaw confuses almost everyone the first time. A bond yield is the annual return you would earn if you bought a bond at today’s price and held it to maturity. The bond’s interest payment is fixed, so when investors pay more for the bond, the same payment becomes a smaller percentage of the price, and the yield falls.
Bond yields are the market’s day-to-day verdict on where interest rates are heading, often before the RBI announces anything.
When traders expect the RBI to cut rates, they buy government bonds to lock in today’s higher payments, pushing prices up and yields down. When they expect hikes or more government borrowing, they sell, and yields rise. Because of this, the 10-year government bond yield often moves before the actual policy decision.
Imagine a ₹1,000 government bond that pays ₹70 a year, a 7% yield. If rates fall and new bonds pay only 6.5%, buyers will happily pay more than ₹1,000 for the old 7% bond, say ₹1,050. At that price, ₹70 a year works out to about 6.7%. The payment never changed; the price did, so the yield fell. That is why bondholders gained through the 2025 rate-cut cycle and lost ground when hike fears returned in 2026.