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December 2022 witnessed a slowdown in the pace of rate hikes by two major central banks - The US Fed and RBI. While both hinted at assessing the impact of previous hikes, they are equally focused on inflation as it continues to be high. Also, in anticipation of this slowdown and possible recession, global market bond yields declined and 10-year g-sec yields remained stable.
Does this give some cues that can help in creating a strong debt portfolio?
Let’s hear what the experts believe.
Avnish Jain, Head-Fixed Income, Canara Robeco MF
Overall view - The next big events are the Union Budget and RBI MPC meeting after that. The rate hike is likely to pause post the last expected hike in February, taking the repo rate to 6.50%. Markets may remain benign with some volatility generated by geo-political events. Also, global market sentiments may remain a little volatile but USD weakness could be beneficial for emerging markets from the currency side.
10-year g-sec may trade between 7.10-7.30% and the shorter end of the curve is likely to remain elevated on high policy rates and fluctuating liquidity conditions.
Fund recommendation - For short term investments, investors may consider low duration and short duration fund categories. Whereas, for medium to long term investment, they may look at banking & PSU debt funds.
Mahendra Jajoo, CIO-Fixed Income, Mirae Asset MF
Overall view - We expect a moderate hike of 25 bps in the upcoming monetary meeting. Since there may still be a few more hikes, the shorter end of the curve might be impacted. We thus expect the yield curve to flatten further. Money market like the 3-month Treasury Bill will probably stay in the 6.46-6.50% band.
With inflation expected to fall further and the global environment beginning to stabilize, long term rates are likely to remain stable between 7.25-7.35%.
Fund recommendation - Since there are no immediate rate decline expectations, investors with a long term horizon could consider target maturity funds with a 5-year/10-year tenor. And for Investors with a shorter horizon, low duration categories and liquid funds appear attractive.
Pankaj Pathak, Fund Manager - Fixed Income, Quantum MF
Overall view - Global supply chains are getting back on track, major commodity prices are stabilizing at relatively lower levels, global growth is slowing down and inflation has started to come down. Major central banks around the world have frontloaded monetary policy tightening with a steep increase in interest rates and liquidity reduction. The full impact of these measures is yet to be seen.
While we expect the 10-year g-sec benchmark to trade between 7.20-7.50%, the short end of the curve (up to 2 years segment) might move higher. If bank credit continues at its current high levels, it could put further upward pressure and force the yield curve to invert.
Fund recommendation - Investors having a 2-3 years holding period and appetite to tolerate some intermittent volatility, can move to dynamic bond funds. Whereas, Investors with short-term investment horizons and low risk tolerance should stick to liquid funds.
