Fixed-income portfolio rebalancing on card as global monetary tightening cycle ends

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Also Read: High time India Inc picks up the baton to further capex: RBI bulletin "Bond yields tend to move in advance of rate action and investors can look to increase allocation to Fixed Income as we expect long bond yields to keep drifting lower and expect the benchmark 10-year bond yield to go lower towards 6.50% by Q2/Q3 CY24," said Puneet Pal, Head-Fixed Income, PGIM India Mutual Fund. The Indian bond market gave up some of its exuberance on the back of higher global bond yields but remained bullish with the longer end of the curve outperforming decently. On Wednesday, the Indian government bond yields trended down, led by recent foreign buying, while no fresh supply for the rest of the financial year also aided sentiment.

The benchmark 10-year yield was at 7.0406%, the lowest since February 2. On the other hand, the 10-year U.S. yield was around 4.30%, as hopes of imminent rate cuts ebb.

The odds of a Fed rate cut in May are down to 37%. Also Read: India set for strong growth in FY25 amid global headwinds: Finance ministry Analysts believe that the Reserve Bank of India (RBI) will be on a long pause. They expect rate cuts only in Q3 of CY2024, but also believe RBI can change its monetary policy stance to ‘Neutral’ before the commencement of rate cuts.

The yield curve has flattened and can continue to stay flat given the positive demand/supply dynamics and rate cut prospects going into FY25. Pal suggests investors with medium to long-term investment horizons can consider funds having a duration of 5-6 years with predominant sovereign holdings as they offer a better risk-reward currently. “Investors having an investment horizon of 6-12 months can look at Money Market Funds as yields are attractive in the 1-year