RBI rate cut only good for short-duration bonds as hopes of big cuts fade

The RBI reduced its main rate by an unconventional 35 basis points to 5.4%, the lowest since 2010

India's short-duration bonds are set to outperform as traders temper their enthusiasm on the size of future rate cuts. 

Yields on shorter notes dropped for a second day after the Reserve Bank of India delivered a larger-than-expected cut Wednesday, while those on the longer-maturity bonds held gains as Governor Shaktikanta Das said further easing would depend on incoming economic data.

"Shorter bonds are finding favour because it gets the dual benefit of lowering of interest rates and the comfort of liquidity," said Lakshmi Iyer, chief investment officer for debt at Kotak Mahindra Asset Management Co in Mumbai. "If you look at the