Short-term spike in 10Y bond yields as uncertainty rises

How are bonds yield reacting?

Bond yields have seen a spike as investors await the results of the elections. As current counting trends show divergence from exit poll results, bond yields are hovering close to 7.1%, as compared to around 6.9% over the last two trading days.

What do spiking bond yields mean? In this case, a spike in the 10-year bond yields (interest rates) indicate a risk averse approach by investors amid uncertainty about the political stability in the country.

India 10Y bond yield trend since May 2024

What is the longer trend showing?

India 10Y bond yield trend since January 2024

While there has been a spike in yields today, we are still far away from the 7.2% seen in January 2024. If the new government is not formed with a strong majority, investors would start to worry and keenly watch steps taken towards financial consolidation, which could further start to impact yields.