US government bond yields have surged since Tuesday’s hot inflation report, as investors bet the Federal Reserve will keep raising interest rates. The 10-year yield is back above 5%. For India, rising US rates are the biggest threat to the foreign money that has been powering the stock market.
The most important number in global finance isn’t a stock price. It’s the interest rate the US government pays to borrow, and this week it moved sharply.
US consumer prices rose more than expected in October, data showed on Tuesday. The same day, Federal Reserve Governor Christopher Waller said that if core inflation stayed at 0.3% or higher, a half-point rate increase should be considered at the Fed’s December meeting.
Bond markets reacted fast. The two-year Treasury yield, which closely tracks expectations for Fed policy, jumped 17 basis points on Tuesday, its biggest one-day rise since April 2025. Short-term yields kept climbing. Over four trading days, the two-year yield rose about 39 basis points to around 4.86%, its biggest four-day rise since June 2022.
The 10-year yield, the benchmark for mortgages and corporate borrowing worldwide, is back above 5%, according to Axios.
Markets now see a December Fed rate increase as all but certain, and are pricing in further increases next year.
Why it matters
Higher US yields affect India in three ways.
Foreign money. When US government bonds pay more, global investors have less reason to take risks in emerging markets like India. Foreign investors have bought about ₹73,500 crore of Indian shares this month, the main driver of the rally, as our deep dive on foreign investor flows explains. Rising US yields are the biggest threat to that flow.
The rupee. Higher US rates tend to strengthen the dollar. The rupee has recovered strongly this month, to around 93.7 per dollar, but rising US yields could cap further gains.
Indian interest rates. The RBI already faces inflation above 6%. A more aggressive Fed reduces any room it might have had to go easy, because a widening gap between US and Indian rates can weaken the rupee.
What to watch
Three US data points matter most over the next month. Producer prices are due on Friday, US time. The Fed meets on 8 and 9 December, and November’s consumer price data arrives on 10 December, just after that meeting.
A cooler inflation reading could reverse some of this week’s jump in yields. Another hot reading could push the 10-year yield higher still.
For Indian investors, the lesson is to watch Washington as closely as Dalal Street. India’s growth story is strong, but in the short run, the direction of US interest rates can move Indian markets as much as anything happening at home.
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