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After many years, the widely tracked 10-year g-sec touched 7.25% in Apr 22. CPI inflation in April was higher than market expectations at 6.95%. Experts believe CPI inflation is likely to remain over 6% for the next 3 months.
Now the question arises - how will the debt market react to this change?
Let’s hear expert outlook on the debt market.
What to expect
Prashant Pimple, CIO - Debt, JM Financial Asset Management
- We expect the debt market to move moderately due to the recent commodity price correction and lower than expected state loan supply
- 10-year g-sec benchmark to remain range bound between 7.00% to 7.25% in the coming quarter
- The shorter end up to 1 year to remain between 4.00% to 5.25% and may gradually move up as repo rate hikes materialise and surplus system liquidity reduces
Sandeep Agarwal, Senior Fund Manager - Fixed Income, Sundaram MF
- RBI is expected to change its accommodative stance in the coming policy. Interest rates to remain volatile with an upward bias
- 10-year g-sec yield to trade between 7.10% and 7.50% in the near term
- Short end of the curve would keep on rising depending on pace of liquidity withdrawal and timing of rate hike by RBI
Sandeep Bagla, CEO, Trust MF
- The outlook for debt market is bearish as inflation is relentless, global bankers are increasing short term rates and fiscal situation is onerous
- Corporate bond spreads could start widening and this could impact bond fund returns
- 10-year g-sec to stay between 7.10% and 7.50% in the coming month
- Unless RBI reduces liquidity, short end yields to trade in a narrow range
What to recommend
Prashant Pimple, CIO - Debt, JM Financial Asset Management
- Investors can opt for short duration schemes in general
- Overnight funds, liquid funds and low duration funds for investors with near term liquidity requirements
- Dynamic bond fund investors with medium to long term investment horizons
- Gilt oriented funds for an investment horizon of 3 years and above
Sandeep Agarwal, Senior Fund Manager - Fixed Income, Sundaram MF
- Ultra short or low duration funds for an investment horizon of up to 6 months
- Short duration, banking & PSU debt fund or corporate bond fund for a longer investment horizon
Sandeep Bagla, CEO, Trust MF
- Short term funds for patient investors
- Roll down funds with 2-year maturity for a good risk reward ratio
