)
The Reserve Bank of India’s (RBI’s) move to allow banks to shift bonds to the ‘held-to-maturity’ category has come as a relief to the market in this segment as yields fall and prices surge.
The 10-year bond yields cooled to 8.41 per cent on Wednesday. It had shot up to 9.4 per cent a day earlier. Bond investors are relieved.
The sharp volatility in the 10-year G-sec yield had investors worried, as they were hit by sharp losses in their Net Asset Values (NAVs) in the past week. Rising bond yields hit the price of bonds which mutual funds hold — the latter have to adjust the prices of their holdings to current market prices. As a result, bond funds depreciate in value.
Long-term gilt funds lost 1.8 per cent last week, according to data from Value Research. Debt income funds lost 1.3 per cent, whereas hybrid debt-oriented conservative schemes lost 1.55 per cent last week. The losses can add up to a huge figure on an annual basis.
Says Yadnesh Chavan, fund manager, fixed income, Mirae MF: “RBI's move has lowered the pressure on G-sec yields. These had been volatile in the past couple of days.”
With the yields falling, bond funds are expected to rise in value, as their bond holdings will appreciate. A fall in yields results in higher bond prices and funds holding such bonds see an uptick in NAVs.
Experts also say the volatility in bond fund net asset values will reduce as a result of RBI's moves and bond yields could remain range-bound. Says Chavan: “Bond yields will remain at 8.2-8.7 per cent and the sharp swings in the 10-year yield should reduce.”
Bond fund investors are usually not used to seeing sharp swings in their NAVs. The past three months have been unnerving for them. The 10-year bond yield surged from 7.08 per cent in May to a high of 9.4 per cent this Monday. Market watchers say such sharp moves in three months are rare.
After RBI's easing measures and increase in liquidity, experts say volatility in the G-sec market should reduce in the next few weeks. As a result, income fund NAVs are likely to hold steady; if yields fall, this should mean additional gains for investors.
At the current level, experts feel the yields are turning attractive. In the past year, bond yields hovered around eight per cent for a long while and yields at current levels are nearly 50 basis points higher.The 10-year bond yields cooled to 8.41 per cent on Wednesday. It had shot up to 9.4 per cent a day earlier. Bond investors are relieved.
The sharp volatility in the 10-year G-sec yield had investors worried, as they were hit by sharp losses in their Net Asset Values (NAVs) in the past week. Rising bond yields hit the price of bonds which mutual funds hold — the latter have to adjust the prices of their holdings to current market prices. As a result, bond funds depreciate in value.
Long-term gilt funds lost 1.8 per cent last week, according to data from Value Research. Debt income funds lost 1.3 per cent, whereas hybrid debt-oriented conservative schemes lost 1.55 per cent last week. The losses can add up to a huge figure on an annual basis.
Says Yadnesh Chavan, fund manager, fixed income, Mirae MF: “RBI's move has lowered the pressure on G-sec yields. These had been volatile in the past couple of days.”
With the yields falling, bond funds are expected to rise in value, as their bond holdings will appreciate. A fall in yields results in higher bond prices and funds holding such bonds see an uptick in NAVs.
Experts also say the volatility in bond fund net asset values will reduce as a result of RBI's moves and bond yields could remain range-bound. Says Chavan: “Bond yields will remain at 8.2-8.7 per cent and the sharp swings in the 10-year yield should reduce.”
Bond fund investors are usually not used to seeing sharp swings in their NAVs. The past three months have been unnerving for them. The 10-year bond yield surged from 7.08 per cent in May to a high of 9.4 per cent this Monday. Market watchers say such sharp moves in three months are rare.
After RBI's easing measures and increase in liquidity, experts say volatility in the G-sec market should reduce in the next few weeks. As a result, income fund NAVs are likely to hold steady; if yields fall, this should mean additional gains for investors.
Says Rahul Goswami, chief investment officer, fixed income, ICICI Prudential AMC: “The yield at this level is a great opportunity to get into higher rates now.”
Experts also don't expect the yields to rise much from current levels. They say the worst might be over for bond prices and domestic bond funds. In the coming weeks, if bond yields stabilise, experts say investors should be able to lock-in at decent rates if they invest for the longer term.
