Government Bond yields in India and US

The US is a global superpower, the world's largest economy (US$ 20.4 trillions, source:IMF) and it has the most liquid capital markets whereas India is fast developing country and stands at 7^th position  (US$ 2.85 trillions, Source:IMF) in terms of GDP. Government securities or bonds are debt instrument issued by government and traded in financial markets and like equities may not directly affect one's personal finances, but the yield ((coupon/value)*100)) tells the direction of economy is heading. The govt. bond described as risk free asset for the financial market because governments are unlikely to default and central banks have compliant. Even as governments run up historic peacetime deficits, central bank can buy up huge amount of the debt. In developing countries like India where government is among the biggest investors in economy, the bond market is a strong indicator of investor confidence in the government and bond yield is useful parameters in accessing economic health. As investors sell government bonds, prices drop, and yields increase which is sign of risk. If the yield offered by a bond is much higher than what it was when issued, there is a chance that government is under financially stress and may not be able to repay the capital. The bonds are relatively more stable but low demand at auctions indicate low investor confidence in the country's economy. Bond yield in developing economies and developed economies cannot equate only on the basis of economic growth plus inflation but need to consider recession, bank rate set by central bank, exchange rate volatility, political risk and other factors which impact on the yield. The old rule of thumb is that govt. pays more when investor perceive a risk of default or fall sharp in currency, this is also one reason why the yield is higher in developing country than developed country. Other difference lies in the fact that U.S. Treasuries pay in dollars and Indian government bonds pay in Indian Rupees (INR). Exchange rate is one of crucial factor in return on bonds but changes in exchange rate are essentially unpredictable over any short period, but there is reason to believe the changes reflect bilateral differences in inflation rates over long periods, such as 10 years.