While the underlying principles are similar, there are some differences between India and the US.....

 In 2025, following oil supply increases and lower borrowing costs in India and the US, inflation expectations are generally expected to be moderate, and bond yields are likely to be influenced by these factors, along with other economic variables.

Inflation Expectations:

Overall, inflation is expected to remain within a manageable range. The Reserve Bank of India (RBI) projects CPI inflation for 2025-26 at 4.0%, with quarterly estimates ranging from 3.6% to 4.4%.

Headline inflation is currently at 2.92% (provisional) in April 2025 .

Food inflation in the rural sector is also at 1.85% in April 2025 .

The RBI may continue with a cycle of rate cuts in 2025, potentially impacting inflation.

Bond Yield Expectations:

Indian government bond yields are expected to decline.

World Government Bonds projects the 10-year government bond yield to be 5.569% by September 2025 and 5.444% by December 2025.

U.S. 10-year Treasury yields edged down in April 2025,

Quantum Mutual Fund reports.

Lower borrowing costs can lead to lower yields on bonds.

This is because investors will demand lower returns on bonds when borrowing costs are low.

Private bond yields will also be affected by these factors,

but they may also be influenced by the specific creditworthiness of the issuer and other market conditions.

Key Considerations:

Oil supply increases can help moderate inflation.

Higher oil production can lower fuel prices, which in turn can reduce overall inflation.

Lower borrowing costs can stimulate economic activity.

This can also lead to higher demand and potentially higher inflation, but the effect is likely to be balanced by the moderating effects of oil supply increases.

Global economic conditions and trade uncertainty can also play a role in inflation expectations.

Bank of Baroda expects global inflation to moderate gradually to 4.2% in 2025.

The overall macroeconomic environment will significantly influence both inflation and bond yields.

Factors such as GDP growth, current account deficits, and government policies will all play a role.

In both India and the US, the overall macroeconomic environment significantly influences inflation and bond yields. Factors like GDP growth, current account deficits, and government policies (monetary and fiscal) play a crucial role. In India, higher GDP growth can lead to increased demand, potentially driving inflation. Current account deficits can pressure the exchange rate and impact inflation through import prices, according to the International Monetary Fund (IMF). Government policies, particularly monetary policy, influence interest rates, which in turn affect bond yields and inflation expectations, according to a paper on the Indian economy from the Department of Economic Affairs.

In the US, similar factors impact inflation and bond yields. Higher GDP growth, while positive for the economy, can fuel inflation if it outpaces supply. The current account deficit in the US can also contribute to inflationary pressures by increasing the demand for dollars, according to Investopedia. The Federal Reserve's monetary policy decisions, which influence interest rates, significantly impact bond yields and inflation expectations, according to a paper on monetary transmission in India from NITI Aayog.

Elaboration:

GDP Growth and Inflation:

In both economies, faster GDP growth can lead to increased demand for goods and services, potentially pushing up prices and inflation.

Current Account Deficits:

A current account deficit can put downward pressure on the exchange rate, potentially increasing import costs and contributing to inflation.

Government Policies:

Monetary Policy: Central bank policies, like those of the Reserve Bank of India (RBI) in India and the Federal Reserve in the US, affect interest rates. Lower interest rates can stimulate borrowing and spending, potentially increasing inflation, while higher rates can curb inflation.

Fiscal Policy: Government spending and taxation policies can also influence economic activity and inflation. Increased government spending, if not offset by tax increases, can lead to higher demand and inflation.

Bond Yields:

Bond yields are influenced by a variety of factors, including inflation expectations, interest rate policy, and the overall macroeconomic outlook.

Key Differences:

While the underlying principles are similar, there are some differences between India and the US. India has a more open economy, with a larger reliance on agricultural production, which can make it more susceptible to external shocks. The US has a more diversified economy and a larger role for financial markets, making it more susceptible to changes in interest rates and investor sentiment.