Market update - Bond market woes persist
The Union Budget, Reserve Bank of India (RBI) monetary policy, inflation data and the US Federal Reserve had heavy adverse impact on sentiment in the Indian debt market throughout last month:
Strategy and outlook
While the bond markets face headwinds in the short run, there is little doubt that inflation would fall in the second half of 2018 provided the monsoon rains are normal. Bond yields will then begin to recede from their current high level of 7.7% on the benchmark 10-year GOI bond. That would make investment in long duration GOI bonds much more attractive than it has been for a long time. Indeed, the Fund already replaced two corporate bonds in the portfolio with the 8.33% GOI bond due 2026. We intend to pursue more such trades in an opportunistic fashion.
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