Yields in global bond markets are rising as their fiscal situations coupled with geopolitical uncertainty is causing nervousness. If oil and commodity prices come under control, we could see a pause.
In India, RBI is expected to raise rates perhaps towards the end of this calendar year. Markets are expecting 2 rate hikes totaling 50 bps with the range being from 0 to 75 bps.
We should expect our 10 yr G Sec yield to rise in the coming months and settle in the 7 – 7.10% range if we see 1-2 rate hikes by March 2027. A third hike could take the range to 7.1 – 7.2%.
The 7 – 7.25% range has historically served as a good resistance level and the base case right now is that our yields should not cross this level in this rate hike cycle. We should then expect a pause for some quarters before the next rate cut cycle can commence.
In an environment where probability of a rate cut is extremely low and that of a hike is reasonably high, it makes sense to take cover against MTM losses on the way up.
Avnish therefore recommends Canara Robeco Savings Fund –a low duration fund that has a maturity of less than a year.
In any case, the shape of the curve is such that there is little to no incremental payoff for moving up from the 1-2 yr range to 4-5 yr range. Staying low duration makes sense either way.
Avish says you should get an opportunity to invest in longer duration plays perhaps a year down the road – until then, stay patient, stay in low duration funds like CR’s Savings Fund.