Market update - Bond market begins to regain lost ground
The bond market remained lacklustre for most of March due to:
The dynamics in the bond markets changed sharply in late March when the government made several surprising adjustments to its borrowing program in FY2019:
Thanks to these measures, the yield on the benchmark GOI bond initially fell by 30bp in a single trading session on 27 March. It gave up just about 20% of that gain on March 28.
Despite the 12bps compression in yield on the benchmark 10-year GOI bond in March, the Fund’s NAV gain in Indian rupee terms was held to 69bps because the spread on the 10-year AAA-rated corporate bonds widened by just under 12bps during the month. Furthermore, the rupee depreciated some 0.12% against the US dollar, which trimmed the Fund’s USD-denominated NAV gain to 0.57%.
The Fund sold one round lot of a NBFC perpetual bond and in late February purchased one round lot of the 8.33% GOI bond maturing in 2026. This switch helped the Fund’s performance because the GOI bond in question went up in price much more than the NBFC bond it replaced. We intend to pursue similar trades in an opportunistic fashion.
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