Debt markets have witnessed large turmoil since final week as traders had been caught off-guard by the Reserve Financial institution of India’s off-policy repo charge hike and its resolution to take away liquidity by way of a CRR hike.
With India’s inflation rising to 8-year highs in April, the RBI is seen climbing rates of interest rather more within the coming months, which implies yields on authorities bonds, are set to climb even additional. Bond costs fall when yields rise, leading to marked-to-market losses for traders.
This may adversely influence the returns of bond funds because the NAV of funds is computed on the costs prevailing on that day.
ETMarkets’ Bhaskar Dutta caught up with Rajeev Radhakrishnan, CIO Mounted Earnings, SBI Mutual Fund, to grasp how bond markets would fare amid these headwinds and what debt traders ought to do.
1. The sovereign bond market is caught within the excellent storm – the start of charge hikes amid heavy provide pressures. The place do you see the 10-year benchmark yield over the close to time period?
2. What ought to the technique be for retail traders in debt funds within the present atmosphere of tighter financial coverage and development headwinds?
3. The short-end of the yield curve is probably the section that’s most affected on the present juncture, given the RBI’s clear-cut intent to cut back the liquidity surplus. The lengthy finish carries with it the danger of period. Which a part of the yield curve do you like proper now?
4. What number of extra charge hikes ought to markets brace for? What’s your expectation for the terminal repo charge?
Thanks Mr Radhakrishnan for a really intriguing dialog.
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