“Yesterday I went to my bank.
Was delighted to see my home loan rate down 40bps.”
What really happened?
India's 10-year government bond yield has dropped to 6.17%, levels not seen since late 2021. It's at 3.5 years low
These factors have contributed to the rally.
- Higher than expected dividend (Rs.2.69t. crore)
- easing inflation
- RBI’s dovish stance
- Liquidity enhancement measure
While borrowers are rejoicing the reduction in rates, even debt investors are happy. They have made more return that any equity in the last one year. Have a look at aggregate mutual funds returns.
Long Duration Debt: 11.03%
Equity Largecap: 7.29%
Equity Flexicap:7.85%
Equity Multicap: 8.68%
In fact some of the debt funds we hold generated 12%+ returns.
Now the big question, should we invest in long duration bond funds now.
- Most of the rate cut expectation is already factored in. So, one can go slow on them. The yield will fall but the volatility is expected to be high. So do a STP.
- High quality corporate bonds offer good risk reward at the point in time. It can offer better returns than long duration fund. Some allocation is warranted.
- US 10-year treasury yield offers 4.5% yield. This has already led to FIIs selling $5bn. Higher outflows can stall this stellar rally. Hence avoid overexposure.
We are so focused on equity that sometimes we miss assets that offer better risk reward. Give your money the right asset allocation.
Try other baskets today!