Assessing Macroeconomic Influences on Indian Sovereign Bond Yields: An Insight from the ARDL Bound Test Approach
Assessing Macroeconomic Influences on Indian Sovereign Bond Yields: An Insight from the ARDL Bound Test Approach

Summary/Abstract: This paper investigates the long-term and short-term determinants of sovereignbond yields in India, a critical macroeconomic indicator closely monitored byinvestors and central banks. According to term structure theory, the shape of bondyields is a key economic barometer, reflecting the overall health of the economy.Using monthly time series data from April 2001 to March 2021, the study exam-ines variables such as long-term sovereign bond yields, short-term Treasury billyields, economic growth, inflation, the monetary policy index, exchange rates, for-eign exchange reserves, gross fiscal deficit, and global Brent crude oil prices. Byaccounting for structural breaks under the ARDL framework, in the presence ofother controlled variables, the analysis confirmed that short-term interest ratesinfluence long-term interest rates, validating the Keynesian conjecture in theIndian context. Additionally, economic growth, the monetary policy index, andglobal Brent crude oil price are identified as significant drivers of long-term inter-est rates. These findings have important policy implications for monetary-fiscalcoordination, especially in debates on the appropriate policy mix during boom-and-bust cycles. Consequently, monetary policy should be reviewed comprehen-sively, incorporating a broad range of macroeconomic variables.

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