In September, the short end of the curve did not rally due to absorption of excess liquidity by RBI. However, long duration strategies have outperformed the short duration last month.
This is how Sep 2021 looked like. Would Oct 2021 also paint a similar picture?
Let’s see what the experts have to say as they share their outlook on the debt market.
What to Expect
Avnish Jain, Head - Fixed Income, Canara Robeco MF
- Longer maturity papers will continue to outperform the short end of the curve in the near term
- RBI's action on managing short term liquidity and pushing overnight rate to near reverse repo of 3.35% may continue to put pressure on the short end of the curve
- Reverse repo rate expected to increase later in the current financial year. Repo rate may remain unchanged
- In the near term, 10-year-g-sec may stay between 6.05%-6.20%
Devang Shah, Co-head Fixed Income, Axis MF
- Inflation appears to be range-bound in the near term and the third wave of covid-19 may not have much impact on the debt market. Further, the current momentum of vaccination drives and the existing pent up demand outline an optimistic view for the near term
- RBI is expected to introduce measures to continue with the absorption of excess liquidity
- Most of the rally on the short end of the curve is behind us and the yield is expected to move upwards by 15 bps to 20 bps in the near term
- The 10-year-g-sec is expected to remain in the range of 6.05% to 6.40%
Mahendra Jajoo, CIO Fixed Income, Mirae Asset MF
- Markets in the near-term will remain range-bound as the immediate domestic and international factors are turning positive
- The economy is opening up and the government borrowings are in line with the budgeted limits. Further, low inflation and declining covid-19 cases will support an increase in the overall revenue prospects
- The 10-year-g-sec is expected to be in the range of 6.10% to 6.25%
Murthy Nagarajan, Head Fixed Income, TATA MF
- CPI (Consumer Price Index) inflation is estimated to be within the range of 2% to 6% in the second half of the financial year
- Surplus liquidity in the banking system will be progressively drained out by RBI
- The short end of the yield curve should see 1-year-g-sec rates of around 4%. 3-year-g-sec rates are expected to trade between 4.75% to 5.00%
- 10-year yields could trade between 5.90% to 6.20%
What to recommend
Avnish Jain, Head - Fixed Income, Canara Robeco MF
- Short duration and corporate funds for an investment horizon of 1 to 3 years
- Income funds, dynamic and gilt funds for investors having a higher risk appetite and an investment horizon of more than 3 years
Devang Shah, Co-head Fixed Income, Axis MF
- Floating rate debt funds for investors having a horizon of up to 1 year
- Credit funds or medium duration debt funds for investors with a medium term horizon open to credit risk volatility
Mahendra Jajoo, CIO Fixed Income, Mirae Asset MF
- Low duration debt funds for investors with a time horizon of 6 months to 1 year
- Short term category where the investment horizon is of 1 to 2 years
Murthy Nagarajan, Head Fixed Income, TATA MF
- Ultra-low duration funds for an investment horizon of 1 to 3 months
- For 3 to 6 months horizon, low duration funds are recommended
- Short term bond funds, banking and PSU funds, corporate bond funds, for investors with 6 to 12 months of time horizon
- Medium term funds where the time frame is 1 year and above
