Uday Kotak Warns of Rising Global Bond Yields Impacting Inflation

New Delhi, September 2: Renowned banker Uday Kotak issued a warning to investors on Wednesday regarding the increasing global bond yields. He stated that the rising government debt and fiscal deficits worldwide may force central banks to expand their balance sheets, potentially leading to higher inflation and increased interest rates in the short term.

His remarks come at a time when Japan’s 10-year government bond yield has surpassed 3%, marking the highest level since 1996. Meanwhile, the yield on 10-year bonds in the United States hovers around 4.8%.

On the social media platform ‘X’, Uday Kotak noted that due to government debt and rising deficits, central banks will have no choice but to increase their balance sheets, which involves printing more money.

He further explained that if this occurs, inflation could rise, and interest rates may also increase in the short term, urging investors to prepare for fluctuations in interest rates.

Kotak stated, “Japan’s 10-year bond yield has crossed 3%, and the U.S. yield is above 4.8%. As government debt and deficits grow, central banks will have no option but to expand their balance sheets. This will lead to rising inflation and higher interest rates in the short term. Be ready for fluctuations in interest rates!”

The rapid movement in Japanese bond yields is significant for the global market. Traditionally, Japan has been a major center for savings, where low-interest rates have led Japanese investors to heavily invest in foreign bonds and other assets.

However, the continuous rise in Japanese bond yields could gradually change this situation. If domestic assets in Japan begin to offer better returns, investors may reduce their additional purchases of foreign bonds, which could exert upward pressure on global yields.

In Japan, the yield on 10-year government bonds has more than tripled over the past two years due to rising inflation, concerns about the country’s fiscal situation, and expectations that the Bank of Japan may accelerate the pace of interest rate hikes.