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Government of India bonds of 1-5 years mature for medium term gains: Report

The benchmark 10-year bond yield was 7.40 per cent. (file)


Government of India bonds with tenures of one to five years are poised for medium term gains at current levels, said a fixed income official at LIC Mutual Fund.

Marjaban Irani, Chief Investment Officer-Debt, LIC Mutual Fund said, “Short-end is already at its peak and is unlikely to rise from current levels. Rate hikes and tight liquidity conditions have already been relaxed. , especially at the low end.” ,

“The current levels look attractive especially for the one-year to five-year portion and should lock funds into these areas.”

The benchmark 10-year bond yield was 7.40 per cent while the liquid five-year bond yield was 7.30 per cent, with a spread of 10 basis points (bps).

The spread turned negative at the end of September, but has since recovered as market participants expect the Reserve Bank of India to reach terminal interest rates sooner than previously.

The yield on one-year to four-year bonds ranged from 6.75% to 7.27%.

Irani said, “Obviously the yields are going to fall on the short end and whether we buy at 7.25% or 7.45%, we know these levels are going to go down in the medium term. So, the objective is to catch the big move. Irani said.

The fund manager said that while the 10-year benchmark yield could rise to 7.60%- or 7.70%-level due to supply pressures, the yields for five-year maturities were at a peak.

Marzban Irani expects the RBI to halt rate hikes after a 35-bps hike in December and the Federal Reserve to provide relief after rate hikes in November and December.

“We do not expect the (Indian) central bank to go for more than one rate hike. Even if it goes for another rate hike after December, bond yields may not respond as much as we did with the September policy. Saw it later.”

RBI has raised rates by 190 bps to 5.90% since May to fight inflation that has remained above its 2%-6% target for nine consecutive months from September. The Fed has raised rates by 300 bps since March.

(Except for the title, this story has not been edited by NDTV staff and is published from a syndicated feed.)


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