Debt funds: How does October 2022 look like?

September 2022 remained volatile for the debt market. The 10-year g-sec yield moved between 7.10% and 7.40%.

Does this hint at the 10-year g-sec range for October 2022? Let’s see what the experts have to say.

What to expect

Lakshmi Iyer, Chief Investment Officer (Debt) & Head Products, Kotak Mahindra MF

• Markets may continue the uncertain spell for a while as it keenly awaits the RBI MPC (Monetary Policy Committee) decision by September end
• There is a likely hood of a 50 bps (basis points) rate hike in the upcoming policy
• 10-year g-sec yields likely to track US yields closely. Expectation of index inclusion news could keep the yield anchored as they head toward 7.50% levels
• Expect range-bound movements till then due to government bond supply, crude oil prices and USD INR movements

Mahendra Jajoo, CIO-Fixed Income, Mirae Asset MF

• The debt markets to remain volatile with incoming data (divided between growth and inflation) and central bank commentaries  
• The shorter end of the curve has moved up whereas the longer end remains sticky. This factors in the aggressive rate hikes in the near term but growth concerns in the longer run
• While the shorter end of the curve is likely to be much more volatile and rise sharply, the longer end of the curve is also likely to react to the rate hikes but the volatility is expected to be lower

Pankaj Pathak, Fund Manager-Fixed Income, Quantum MF

• Domestic inflation concerns are easing. We expect RBI to hike the repo rate to around 6%-6.25% and stop there. However, in light of global monetary policy tightening and India's external vulnerabilities, RBI is likely to maintain a hawkish tone and keep the room open for more rate hikes
• We expect 10-year g-sec yields to trade in a broad range of 7.20%-7.60% over the next 3-6 months
• Market to closely follow the RBI's liquidity stance. Short term rates will depend on the RBI's liquidity stance. If sufficient liquidity is provided on a durable basis, short term (2-5 years) rates may come down by 10-20 bps over the coming months

What to recommend

Lakshmi Iyer, Chief Investment Officer (Debt) & Head Products, Kotak Mahindra MF

• Investors could look at target maturity funds to lock in at current elevated yields
• Investors could also look at actively managed funds like dynamic bond funds and gilt funds to ride through the current volatile yet range-bound interest rate phase

Mahendra Jajoo, CIO-Fixed Income, Mirae Asset MF

• Investors with short-term goals can opt for funds with duration of 6-8 months like low duration funds
• For investors with longer term goals, 3-5 years looks like a sweet spot. They can consider short term funds or 3-year or 5-year lock in schemes

Pankaj Pathak, Fund Manager-Fixed Income, Quantum MF

• Liquid funds for investors with short term investment horizon and low risk tolerance
• Dynamic bond funds for investors with 2-3 holding period and appetite to tolerate some intermittent volatility