MACROECONOMIC DETERMINANTS OF GOVERNMENT SECURITIES YIELD: A STUDY OF INDIAN GOVERNMENT SECURITIES MARKET

Abstract

The objective of the paper is to study the impact of macroeconomic variables such as debt to GDP ratio, output growth, inflation, monetary policy, ten-year benchmark US treasury yield, LIBOR, and exchange rate on short, medium, and long-term government securities (G-Secs) yields. VAR model and Impulse Response are used for analysis. The study has used data from January 1997 to December 2017. Results show that inflation and monetary policy are the most important macroeconomic determinants of G-Secs yield.  It is also found that the impact of monetary policy decreases with the increase in maturity of G-Secs yield. Besides, the exchange rate has a significant effect on only short-term G-Secs yield. Other macroeconomic variables such as debt to GDP, index of industrial production, LIBOR, and ten-year benchmark US treasury yield have no significant impact on the G-Secs yield of any maturity in Indian G-Secs market.