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November began with the policy outlook of US Federal Reserve, which gave much needed clarity on its rate hike cycle. The Fed clarified that that it will moderate its rate hike cycle, giving positive signal to the debt markets.
As a result, the10-year benchmark G-sec fell to 7.25%. Corporate bonds also rallied by almost 20 bps.
Overall, November was good for debt markets. However, will the trend continue? Let’s find out:
Alok Singh, CIO, Bank of India Mutual Fund
- Debt market will closely follow two events in December – RBI Monetary Policy Committee (MPC) meeting and the Fed meeting
- With concerns around inflation and growth subsiding, RBI may look to re-calibrate it's rate hike cycle.
- 10-year g-sec to hover around 7.5%
Anand Nevatia, Fund Manager, Trust MF
- Central banks across the world have been hiking rates to tame inflation. As a result, there has been growing concerns of mark-to-market losses in fixed income funds
- There are uncertainties regarding trajectory of inflation which are compounded by geo-political issues in Europe and lockdowns in China
- The short end of the curve appears to have discounted significant rate hikes more so in terms of yields on corporate bonds. This has led to flattening of the AAA corporate bond curve from 1 year to 10 year and beyond
Devang Shah, Co-Head, Fixed Income, Axis MF
- Repo rate could go up to 6.5%. For this, RBI may hike rates twice – 35 bps in December and 25 bps in February. So, we are not so bullish
- 10-year yields may trade in 7.10%-7.5% range and similarly investor should not expect major sell off in short end of the curve too
- Medium term outlook for fixed income remains unchanged as we are not moving from rate hikes to rate cuts. But the peak of inflation is probably behind us
What to recommend
Alok Singh
- Ultra-short, low duration and short-term funds may be beneficial for investors
Anand Nevatia
- Take exposure to short term portfolios with up to 3-year maturity and not build unnecessary duration risk by investing in medium or long term portfolios
Devang Shah
- Ultra-short duration funds and money market funds for investment horizon of up to one year. If investment horizon is more than one year, opt for short duration funds or for a slightly longer duration, consider target maturity funds of three-four-year duration
