James Carville, adviser to former U.S. President Bill Clinton, once joked that if he could be reborn, he’d choose to return as the bond market. After all, he said, nothing unnerves politicians more than rising yields. That line, half in jest, carries a sobering truth: bond markets often dictate the limits of economic policy.
Unlike equities—where only companies raise money and new issues are occasional—the bond market is a constant channel of funding for both governments and corporates. Governments, in particular, tap debt markets frequently, sometimes multiple times in a month. This means any rise in borrowing costs immediately reshapes budget priorities. Globally, debt and currency markets tower over equities in size, and their influence is proportionately greater.
History offers telling examples. In the U.S., ballooning deficits pushed Treasury yields higher through the 1980s and early ’90s. By the time Clinton took office in 1993, fiscal stress was acute. A mix of discipline and strong growth turned that tide, producing a surplus by 2001. The message was clear: confidence in government debt is the bedrock of economic credibility.
India, too, has felt the sting of bond market discipline. In 2013, when the U.S. Federal Reserve hinted at scaling back its bond purchases, foreign investors pulled money out of Indian debt. Bond yields here spiked above 9% and the rupee hit record lows, forcing the Reserve Bank of India to tighten liquidity and raise rates. Again in 2017–18, inflation concerns and fears of higher government borrowing pushed yields up despite policy rate cuts.
The pandemic years were another stress test. The RBI slashed policy rates by 250 basis points between 2019 and mid-2020, pulling yields down to about 5.9%. But inflation soon touched 7.6% and the fiscal deficit soared to 9.2% of GDP in FY21, the highest on record. Markets responded quickly—yields climbed back near 7.5% by 2022, well before the central bank resumed tightening. To calm nerves, the RBI stepped in with large bond purchases and even published a calendar of planned interventions.
And the bond market’s veto power is not confined to emerging economies. In Britain, Liz Truss’s plan for unfunded tax cuts in 2022 sent gilt yields soaring. The Bank of England was forced into emergency purchases, and Truss was out of office within weeks. More recently, U.S. yields jumped when the Trump administration announced steep tariff hikes in 2025, forcing a pause in the plan.
The lesson is stark: bond markets are more than funding platforms. They are barometers of investor confidence and guardians of fiscal credibility. When yields move sharply, policymakers are compelled to listen—whether through tightening policy, scaling back spending, or even reversing political decisions.
For India, where borrowing requirements remain high and fiscal consolidation is still a work in progress, these signals matter deeply. And in a global environment where risk sentiment can shift overnight, ignoring the bond market is never an option.
About Altifi
Altifi, from Northern Arc Securities Private Limited (a wholly owned subsidiary of Northern Arc Capital), is a SEBI-registered Online Bond Platform Provider (OBPP) designed to simplify access to fixed-income investments.
Through Altifi, investors can access corporate bonds, government securities, and commercial in a user-friendly digital environment. The platform leverages advanced technology to deliver real-time market data, expert insights, and seamless execution, empowering investors to diversify portfolios and participate with confidence in India’s burgeoning investment landscape.
About Northern Arc
Northern Arc is one of the leading players amongst India’s diversified NBFCs in terms of AUM as of March 31, 2024dedicated to empowering the lives of underserved individuals and businesses. Powered by technology and data, Northern Arc offers a suite of solutions including lending, placements, and fund investments in key sectors like MSME Financing, MFI, Consumer Financing, Vehicle Financing, Affordable Housing Financing, and Agricultural Supply Chain Finance. Since 2009, Northern Arc has facilitated the financing of over INR 2.2 trillion cumulatively, for its clients, spread across 691 districts in 28 states and 7 Union Territories in India. Our work, including that of our originator partners, has impacted the lives of over 124 million people.
Northern Arc handles an AUM of INR 16,525 crores through its balance sheet and active AIF funds as of June 30, 2025. The firm is backed by marquee equity investors like IFC, Sumitomo Mitsui Banking Corporation, LeapFrog, Accion, Affirma Group, Dvara Trust, and Eight Roads (a proprietary arm of Fidelity).
Source: Report titled “Analysis of NBFC sector and select asset classes” dated June 2024 prepared and released by CRISIL Research *Disclaimer: All the numbers stated in the boilerplate are as of June 30, 2025.
Moneycontrol Journalists are not involved in creation of this article.
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