The debt markets started 2022 on a tough note. Bond yields moved up further due to high inflation in US, Fed's indication that it will raise rates in March and other global and domestic factors.
With the Budget scheduled to be presented today and the rake hike cycles about to start globally, what is the outlook for debt funds in February. Let’s hear what the experts have to say.
George Heber Joseph, CEO & CIO, ITI Mutual Fund
Markets are expected to witness an increase in volatility not just in the near term but over the course of 2022 and probably beyond- Fed's latest stance has led to an upward revision in our forecast of 10-year G-sec rates to 6.30% - 6.90%
- We do not anticipate an increase in the repo rate before September 2022. However, the reverse repo rate may go up in February
- Shorter term yields have already moved up significantly in anticipation of a gradual policy normalization by RBI
Mahendra Jajoo, CIO – Fixed Income, Mirae Asset MF
Debt market was impacted in January due to high inflation in US and Fed's indication that it will raise rates from March. These factors led to a rise in global yields- The rising trend is likely to continue due to a mix of factors including Budget announcements, fiscal deficit numbers and RBI’s next moves on the normalisation front
- At this point, the outlook is of a stable market. Yields are likely to inch up gradually in a non-disruptive manner
- 10-year g-sec is expected to trade in the range of 6.65 to 6.95%. Money market rates may range between 3.65 to 3.85%
Sushil Budhia, Senior Fund Manager – Fixed Income Investments, Nippon India Mutual Fund
Globally, treasury yields moved up in January on expectations of early commencement of rate hike cycle- Last month, overnight rates rose 65 bps to around 4%. The 10-year benchmark also saw a ~20 bps upward movement
- Budget, RBI monetary policy and expected rate tightening by global central banks will keep the rate elevated in the near term
- Cost of borrowing may go up further due to tightening of policy rates
What to recommend
George Heber Joseph
Investors should look at dynamic bond funds to take benefits of the expected volatility in rates across maturities
Mahendra Jajoo
Long-term investors can look at corporate bond or similar funds. Liquid and ultra-short term funds should be preferred for short term investments
Sushil Budhia
Ultra-short for investors having 6-9 month investment horizon and short term for investors having investment horizon of 18-24 months
