Bond Markets:
U.S. President Donald Trump has not only disrupted international trade rules but has also sought to challenge the independence of the U.S. Central Bank (Federal Reserve).
- A bond is a financial instrument that promises a fixed return (face value) at the end of a specific period, unlike equity, which has no fixed term or guaranteed returns.
- Bonds are generally safer investments used to hedge against risks or act as a store of value.
- Bond yields are inversely proportional to their market price: when prices fall, yields rise.
- Inflation erodes the real returns from bonds. If inflation exceeds bond yield, investors lose purchasing power.
- When inflation expectations rise, the Central Bank typically raises interest rates, causing bond prices to fall and yields to rise, impacting investment decisions across the economy.
- Currency depreciation also impacts foreign bondholders negatively, reducing their real returns when converting back to their home currency.
- The Indian Bond Market is a vital segment of the financial system where government entities, corporations, and financial institutions raise funds by issuing bonds.
- Investors provide loans to the issuers and, in return, receive periodic interest payments and principal repayment upon maturity.
