Debt funds delivered moderate returns in November largely due to lower spread of 10-year G-sec.
Last month, while the 10-year g-sec traded in the range of 5.86-5.92%, spreads on illiquid government bonds and state development loans compressed on the back of open market and special operations conducted by the RBI.
In December, the market will look for key decision of the monetary policy committee.
Dinesh Ahuja, Fixed Income Fund Manager, SBI MF
- Economic data to improve on the back of festivals
- Inflation for the October – December quarter has not fallen as anticipated. Hence, guidance in the December policy would be closely watched
- While the excess liquidity will support the short end of the curve, the long end of the curve is expected to remain range bound on account of the RBI operations
- December policy outcome would determine the near term range of the yield curve
Mahendra Jajoo, Head - Fixed income, Mirae Asset MF
- Expect interest rates to be stable in the near term because of RBI’s continuous efforts to revive the economic activity. However, current food inflation remains a concern
- RBI may keep rates unchanged
- In the near term, expect 10-year G-sec to move in 5.80%-5.95% range
- RBI’s continuous liquidity injecting operations, expectations of no rate cuts and high inflation will keep the market in a narrow range
- On short end of the curve, due to excess liquidity and stretched rates, money market rates are expected to be in a range. If liquidity stabilises, there can be an upward movement of 5-10 bps
Rahul Singh, Fund Manager, LIC Mutual Fund
- Liquidity would continue to be in surplus. This will provide impetus to GDP growth that got impacted due to months of lockdown and help government conduct its borrowing program smoothly without upward pressure on yields
- Surplus liquidity will continue to compress spreads between 2 years and 5 years
- Rising CPI numbers and fiscal overhang remains a worry
- 10-year gsec to remain in the range of 5.70%-5.90% for the time being
What to recommend
Dinesh Ahuja, SBI MF
- Investors having a minimum investment horizon of 3 years could allocate money to short-term funds, medium term funds, gilts funds and dynamic bond funds
Mahendra Jajoo, Mirae Asset MF
- Investors with long term horizon can look at banking and PSU funds
- For investors with short term horizon and conservative approach, liquid funds and ultra short term funds are good options
Rahul Singh, LIC MF
- Low duration, short term and banking and PSU debt fund for investors with 1 to 3-year horizon
