Global yields are rising and probably may remain elevated over the near to medium term until inflation comes under control or deficits are reined in.
RBI is expected to commence its rate hike cycle probably from next month. Anurag expects about 75 bps hike in this cycle – which can potentially be completed by March 2027 or sooner.
10 yr G Sec yields are expected to settle around 7.25% -7.40% range if this rate hike cycle is to the tune of 75 bps.
Some of these expectations are already baked into prices today, with 10 yr G Sec yields at 7% and the yield curve has also flattened considerably.
If oil prices remain elevated above $100 for some months and food inflation persists due to any global supply shocks, he will re-evaluate this base case on yields.
Anurag suggests that since we are at the cusp of a ratehike cycle, its best to consider money market funds and short term funds tolimit MTM exposure from rising yields.
When you feel the rate hiking cycle is coming to an end, switch into gilt funds to ride yields down in the next down cycle. This of course is recommended for active and experienced investors.
Rather than trying to time the end of the rate hiking cycle, a common sense practical and highly effective way is to observe inflation trends in things you buy. When you start observing that the rate of inflation is slowing down or flat-lining, that may be a good indicator that most of the rate hike cycle is behind you.