Bond yields are rising. How should you reposition your debt fund portfolio?

Subscribe to enjoy similar stories. The yield on 10-year government securities has risen 10 basis points over the past month, raising concerns among bond investors, as higher yields typically translate into lower bond prices. Bond yields have hardened after the Reserve Bank of India (RBI) left policy rates unchanged and refrained from announcing fresh liquidity measures in its latest monetary policy meeting.

Market participants had been expecting the central bank to step in with liquidity support after the Union Budget 2026–27 unveiled record borrowing of ₹17.2 trillion to fund government spending. Higher borrowing usually leads to an increased supply of government securities, leading to higher yields with basic supply-demand dynamics at play. With yields firming up, fund managers say debt fund investors need to strike a careful balance in their portfolios to guard against further upside risks.

Here’s how they are positioning debt strategies in the current environment. Most experts are advising investors to stay in short-duration, accrual-oriented strategies, where returns are driven primarily by interest income rather than capital gains. This is also because expectations of another RBI rate cut in the current calendar year have largely faded for now.

“Our core recommendation is to invest in the liquid-plus segment, which includes funds up to two years’ duration," said Manish Banthia, chief investment officer — fixed income, ICICI Prudential Asset Management Company. “This includes floating-rate funds, low-duration funds and money market funds," he added. Liquidity tightness has pushed up spreads on one-year commercial papers (CPs) and bank certificate of deposits (CDs) and two-year corporate bonds, making this segment