Indian Bond Yields Surge Above 7%, Debt Fund Investors Seek Opportunity in Short-Term Segment
India's bond yields have risen above 7%, causing concerns for debt fund investors. The India 10-year government bond yield stood at 7.073% on September 15, crossing the 7% mark.
The rise in yields can be attributed to higher crude oil prices, inflation concerns, and uncertainty over global interest rates. Axis Mutual Fund's fixed income market review and outlook report notes that the RBI's decision to keep the repo rate unchanged initially supported bonds, but later concerns over oil prices and inflation risks led to a rise in yields.
Axis Mutual Fund has an overweight view on 3-5 year corporate bonds and select SDLs (State Development Loans), citing attractive carry, ample liquidity, and limited certificate of deposit issuance. This segment could provide a middle ground for debt-fund investors, offering relatively high yields without the same level of interest-rate sensitivity associated with long-duration funds.
The fund house has a neutral view on government securities, citing fiscal breach risk and the deferment of Bloomberg index inclusion. It is more cautious on long-duration SDLs and bonds, where high state borrowing could keep yields elevated.