As of June 17, 2024, the major economy with the highest yield on 10-year government bonds was Turkey, with a yield of 28.67 percent. This is due to the risks investors take when investing in Turkey, notably due to high inflation rates potentially eradicating any profits made when using a foreign currency to investing in securities denominated in Turkish lira. Of the major developed economies, United States had the highest yield on 10-year government bonds at this time with 4.09 percent, while Switzerland had the lowest at 0.69 percent.
How does inflation influence the yields of government bonds?
Inflation reduces purchasing power over time. Due to this, investors seek higher returns to offset the anticipated decrease in purchasing power resulting from rapid price rises. In countries with high inflation, government bond yields often incorporate investor expectations and risk premiums, resulting in comparatively higher rates offered by these bonds.
Why are government bond rates significant?
Government bond rates are an important indicator of financial markets, serving as a benchmark for borrowing costs, interest rates, and investor sentiment. They affect the cost of government borrowing, influence the price of various financial instruments, and serve as a reflection of expectations regarding inflation and economic growth. For instance, in financial analysis and investing, people often use the 10-year U.S. government bond rates as a proxy for the longer-term risk-free rate.
