Detailed Explanation:

Answer: Option 4 — 1, 2 and 3

Indian Government Bond Yields are influenced by multiple domestic and international factors. All three statements correctly identify key determinants of bond yields in India.

✅ Statement 1 – Correct: The US Federal Reserve's monetary policy decisions, especially interest rate changes, affect global capital flows and can make US assets more or less attractive relative to Indian bonds, thereby influencing yields.

✅ Statement 2 – Correct: The Reserve Bank of India directly influences bond yields through monetary policy tools like repo rate adjustments, open market operations (OMOs), and liquidity management measures.

✅ Statement 3 – Correct: Inflation expectations and short-term interest rates are fundamental determinants of bond yields, as investors demand higher yields to compensate for inflation risk and benchmark against prevailing short-term rates.

📝 Short Notes: Factors Influencing Government Bond Yields

• Monetary Policy: Central bank actions (RBI's repo rate, CRR, SLR, OMOs) directly impact liquidity and interest rate environment, affecting bond demand and yields.
• Inflation: Higher inflation expectations lead to higher yields as investors demand compensation for erosion of real returns.
• Global Factors: US Fed policy, global risk sentiment, and foreign portfolio investor (FPI) flows significantly influence emerging market bond yields including India.
• Fiscal Deficit: Higher government borrowing increases bond supply, potentially pushing yields higher.
• Economic Growth: Strong growth prospects can lead to expectations of tighter monetary policy, affecting yields.
• Currency Movement: Rupee depreciation concerns can lead to FPI outflows, increasing yields.