Yields on bonds of different maturities reveal much about an economy’s prospects

Government bonds are debt securities issued by governments to finance deficits. They promise to repay the principal and interest. The yield, reflecting the return investors require, depends on inflation expectations and the opportunity cost of alternative investments.

If the coupon rate is below investors’ required return, the bond’s market price falls, yielding a higher return. Bonds are traded in secondary markets, which can alter yields from their issuance value.

Yield curves, which plot yields against maturities, signal economic expectations: upward-sloping curves suggest growth and rising inflation, while inverted curves often precede recessions.

In emerging markets, yields incorporate a country risk premium due to higher default risks. Developing local-currency bond markets reduces reliance on foreign borrowing and supports long-term economic growth.