The benchmark 10-year government security yield, after stabilising in December, saw downward movement at the start of the new year. As yields are inversely related to price, it means that bond prices rallied. Thanks to this downward trajectory of long-term bond yields, some fixed-income mutual funds have seen annualized returns hit levels of 12-15% over the past 2 months. Fixed income funds, however, come with many varying strategies and all of them don’t benefit in a similar way when market yields move lower.
Low duration funds
If you hold ultra-short term or short-term income funds, you may find that returns haven’t moved much in the last 2-3 months. This is due to the construct of these funds. Typically, the objective of ultra-short term funds is to give a stable return in a period of 6-12 months and short-term income funds aim to do it over 1-3 years.
