Which factor can negatively impact bond yields?

Rising inflation expectations can negatively impact bond yields because they lead investors to anticipate that future interest rates will increase. When inflation rises, the purchasing power of fixed interest payments from bonds decreases, making them less attractive. As a result, investors demand higher yields to compensate for the erosion of their returns due to inflation. This dynamic creates upward pressure on yields.

The other factors listed would generally influence bond yields in different ways. Increasing consumer demand and strong economic growth can contribute to higher interest rates as central banks may raise rates to manage inflationary pressures, which in turn could lead to higher bond yields. Improved government credit ratings typically signal a stronger ability to repay debt, which generally leads to lower yields as the risk premium associated with the bonds decreases, making them more attractive to investors.