Why investors must have higher debt allocation over the next 12-18 months

livemint.com:

India bond markets have witnessed quite a bit of volatility in the last few months. The yields on the 10-year government bonds fell from 7.45% to 7% and have risen back to 7.25-7.35% due to rise in US bond yields and crude prices

There is enough reason to believe that the market dynamics are changing from three facets:

Fundamental—Macro picture highlighting the case for adding bonds.

Structural—Changing market demand-supply dynamics and a case for long bonds (duration).

Relative—Perspective from history highlighting outperformance of bonds markets over other asset classes.

Inflation: Headline inflation is at ~5%. Decline in core inflation continues and this could be likely go below 5% as slowing growth in China and the weak global economy will likely keep commodity prices muted.

Growth: India’s GDP growth seems to be peaking off and could remain subdued at sub 6% levels over the next two years. This is due to the fall in fiscal impetus, and weakness in global economies.

Favourable external position: India’s external position remains comfortable considering the trinity (Forex reserves, balance of payments and current account deficit). Is China’s loss India’s gain? – Perhaps yes!

Narrowing US-India interest rate differential: To combat the pandemic, the US government increased spending to unprecedented levels leading to wider fiscal deficits (from sub 3% to 8-10%), a significant expansion of the US Fed balance sheet from $1-2 trillion and an easy monetary policy stance for 2.5 years.

Resultant impact of easy fiscal and monetary policies over the last 3-5 years has led to strong growth and inflation spiral. In the last 12 months, the US Federal Reserve hiked interest rates to the tune of 500 basis points, or bps, and shrank