A widely popular strategy of investing in India's five-year government bonds is losing its appeal as the security has now nearly priced in likely rate cuts, five fund managers said on Thursday.
Heavy buying in the 6.75% 2029 bond has knocked down the yield by 80 basis points (bps) since March, among the steepest declines across dated securities and only behind two- and three-year bond yields.
The five-year bond is also trading 15 bps below the policy repo rate of 6%, the deepest inversion in 11 years.
"The yield is trading sharply below the repo rate due to multiple factors, but this move is now overdone," said Murthy Nagarajan, head of fixed income at Tata Asset Management.
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