Yields of short-term funds to soften post RBI action: Experts

Tags: News
While yields of short-term and ultra short-term debt fund schemes are likely to soften further, long-term bond yields may remain volatile post RBI action, which has maintained status quo in key policy rates today, according to industry experts.

"We feel that yields on short-term bonds will hover around current level or will remain benign till mid-February period of next year. Similarly, we remain neutral to slightly bullish on long-term bond funds in the short run," Head of Fixed Income of Reliance Mutual Fund, Amit Tripathi said.

He also said liquidity environment is likely to remain comfortable in the near-term.

Similarly, Head of Fixed Income of Baroda Pineer Mutual Fund, Alok Sahoo said, "We believe the ultra-short term rates to soften further due to better liquidity condition and no rate action by RBI."

On the long-term bond yields, Sahoo said, "We expect long end of the curve would remain volatile as concern remains on higher fiscal deficit and higher headline inflation."

Notably, 10-year benchmark government bond yield has fallen by around 12 basis points to 8.8 per cent level reacting to RBI's move to maintain status quo in policy rates.

Echoing similar sentiment, Head of Mutual Fund Research of FundsIndia.Com said short-term and ultra short-term debt funds are likely to see appreciation going ahead.

"For mutual fund investors, ultra short-term and short- term debt funds will continue to be a more predictable option for appreciation at this point," Head (Mutual Funds Research) of FundsIndia.Com, Vidya Bala said.

Bala also said a hold strategy on long-term debt funds is warranted until any further rate action by the RBI becomes apparent.

Meanwhile, Axis Mutual Fund said investors with short-to- medium term view should look to invest in short duration funds.

"Investors with a short to medium term view should look to invest in short duration funds. With a medium to longer term, investors should look to invest in longer duration funds as yields are likely to fall as the market prices in a change in stance of the central bank," Head Fixed Income of Axis MF, R Sivakumar, said.

Some fund managers also said the outcome of US Fed meeting is to be seen for gauging its impact on the yield curve.

"Over the near term, bond yields will be driven by global news flow, in particular US FOMC decision, and local economic data," Chief Investment Officer (Fixed Income) of Franklin Templeton Investments, Santosh Kamath said.

"Liquidity is further expected to improve, which will have a favorable impact on short term rates. We continue to hold our view that inflation shall taper down, though not sharply; a modest improvement in inflation from current levels cannot be ruled out," Chief Investment Officer (Fixed Income) of ICICI Prudential MF, Rahul Goswami said.

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