2 hrs ago
Managers Favor Shorter-Term Debt Funds After RBI Rate Hike
India’s central bank raised its main interest rate by a small amount on Wednesday.
When interest rates rise, bond prices and yields can change.
Fund managers say bond markets have already anticipated much of the expected rate increases.
Many therefore think debt funds holding bonds for a few years may be a reasonable choice.
Some also favor shorter-term corporate bonds.
Managers differ on how many more rate increases may come.
They say global events and inflation could affect that decision.
The yield on India’s 10-year government bond rose to 7.24% after the announcement.
The Reserve Bank of India raised its repo rate by 25 basis points on Wednesday.
Fund managers said much of the expected rate tightening has already been reflected in bond yields.
Several managers recommended funds focused on two-to-four-year maturities, citing yields around 7.8-8%.
Other recommendations included one-to-three-year corporate bonds and six-to-18-month debt strategies.
The 10-year government bond yield rose five basis points to 7.24%, its highest since December 2023.
- Who
- The Reserve Bank of India and debt fund managers, including representatives of Kotak Mahindra AMC, UTI AMC, Mirae Asset Mutual Fund, Invesco Mutual Fund and Edelweiss Mutual Fund.
- What
- The RBI raised the repo rate by 25 basis points, while fund managers advised on debt-fund and bond strategies.
- Where
- India.
- When
- Wednesday; the article does not specify the date.
- Why
- The rate hike was linked to inflation; managers said much of the expected tightening was already priced into bond yields.
More limited tightening
Further hikes expected
How much tightening remains
More limited tightening
Basant Bafna expected a shallow cycle, with one more hike in December, and said the yield curve had priced in most negatives.
Further hikes expected
Vikas Garg expected two to three further hikes to anchor inflation expectations; Anurag Mittal anticipated 50-75 basis points more in the current cycle.
Where investors might look
More limited tightening
Basant Bafna highlighted the six-to-18-month segment for attractive risk-adjusted returns.
Further hikes expected
Other managers emphasized two-to-four-year funds, while Vikas Garg recommended one-to-three-year corporate bonds.
Key facts
- Repo rate move
- The RBI raised the repo rate by 25 basis points.
- Expected further hikes
- Managers' estimates ranged from one more hike to two or three; several expected a further 50 basis points.
- Favored maturity range
- Multiple managers favored debt funds or bonds with maturities around two to four years.
- Yields cited
- Yields around 7.8-8% were described as attractive in some short-to-medium segments.
- 10-year government bond
- Its yield rose five basis points to close at 7.24%, the highest since December 2023.
- Edelweiss forecast
- Edelweiss Mutual Fund expected the repo rate to reach 6.25% by early 2027.
Quotes
Vikas Garg
Head of fixed income at Invesco Mutual Fund
“Any resolution of the West Asia conflict could lead to a sharp correction in crude oil prices, thereby easing inflationary pressures.”
financialexpress.com
Sources
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