Summary
An Indian Express analysis of IMF data shows that 10-year government bond yields rose across major economies between 27 February 2026, when the US-Iran war began and 30 September. The US 10-year yield rose by 125 basis points.
China was the exception: its yields fell. China's consumer inflation was 0% in 2025 and 0.2% in both 2023 and 2024 and is expected to reach only about 1% in 2026. Growth has slowed to a "new normal" of 4-5%, the property market that once absorbed household savings is in a slump and capital controls limit investment abroad.
Excess savings have therefore flowed into government bonds, pushing their prices up and yields down. India is on the other side of the divide: the RBI raised the repo rate to 5.50% in October 2026 and the 10-year G-sec yield rose to 7.24%.
WHY IT MATTERS FOR UPSC & STATE PCS
Government borrowing costs have risen sharply worldwide since the US-Iran war began in late February 2026, while China's have fallen. The divergence shows two different economic problems: inflation pushing up yields in most economies and weak demand pulling them down in China. India is facing the first of these, with a repo rate increase and higher G-sec yields.
Standard News
When Cheap Borrowing Reflects Weak Demand
A government bond's yield is the price of lending to the safest borrower in an economy. Because every other loan is priced above it, a change in that yield changes borrowing costs across the whole economy. When yields rise, home loans, business loans and government interest payments all tend to become more expensive.
Between 27 February and 30 September 2026, IMF data show yields rising almost everywhere. The US 10-year yield rose by 125 basis points. The war that began in late February raised energy prices, inflation rose and central banks raised rates.
China was the only major economy where yields fell.
Why China Is Different
China's inflation has barely moved. Consumer inflation was 0.2% in 2023 and 2024 and 0% in 2025 and it is expected to rise only to about 1% in 2026 despite higher oil prices. With prices this flat, China's central bank has no reason to raise rates. The deeper cause is where Chinese savings can go:
- Property, once the main home for household savings, is in a slump.
- Overseas investment is restricted by capital controls.
- Consumption remains weaker than policymakers want, because growth relies on exports more than on domestic spending. With few alternatives, savings flow into government bonds. More demand pushes bond prices up and yields down. The low yields reflect a lack of attractive places to invest, not strong confidence in the economy.
Who feels this in China: a saver with money in government bonds earns very little; a family whose wealth is in property has seen it stagnate; and a factory selling at flat prices has little reason to expand. Cheap borrowing does not help much when few households or firms want to spend more.
This resembles Japan after its asset bubble burst in the early 1990s. Households saved, savings went into government bonds, yields fell to near zero and the economy grew slowly for years. Low yields did not lead to recovery.
India Is on the Other Side
India's problem is the opposite of China's. To respond to imported inflation, the RBI raised the repo rate by 25 basis points to 5.50% in October 2026 and the 10-year G-sec yield rose to 7.24%.
Who feels this in India: a borrower with a floating-rate home loan may see payments rise; a small business renewing working capital pays more for it; and the government pays more on new borrowing, which leaves less room for other spending.
Savers, on the other hand, earn better returns on deposits and bonds. That is why India's 4.3% fiscal deficit target for 2026-27 matters. If the government borrows more when yields are already high, it competes with private borrowers for the same savings and pushes rates up further.
This is known as crowding out. For GS3, the lesson is that a bond yield needs to be interpreted, not just read. Rising yields can reflect inflation and tighter policy; falling yields can reflect a lack of demand. China's experience shows that cheap money is not always a sign of a healthy economy.
Quick Facts
Key numbers & takeaways — revise these first
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A government bond yield is the return an investor earns by lending to the government.
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Bond prices and yields move in opposite directions.
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One basis point is one-hundredth of a percentage point, so 100 basis points equal 1 percentage point.
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The US 10-year Treasury yield rose by 125 basis points between 27 February and 30 September 2026.
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China's consumer inflation was 0.2% in 2023 and 2024 and 0% in 2025.
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China's growth has slowed to a "new normal" of about 4-5%.
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The RBI raised the repo rate by 25 basis points to 5.50% in October 2026.
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India's 10-year G-sec yield rose to 7.24% after the RBI's increase.
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India's fiscal deficit target for 2026-27 is 4.3% of GDP.
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"Crowding out" occurs when heavy government borrowing raises interest rates for private borrowers.
Connect the dots for your UPSC preparation.
Standard news covers the event. Log in to read our comprehensive analysis and uncover the hidden constitutional, structural, and ethical dimensions of this topic:
How a change in the G-sec yield passes through to home loans, MSME working capital and the government's interest bill, step by step
Why China's excess savings, property slump and capital controls combine to push yields down and what that means for its growth
Where China's experience matches Japan's after the 1990s and where it differs
What a 4.3% deficit target and a 7.24% G-sec yield mean for India's fiscal choices, with short-term and long-term policy options
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