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India’s largest asset manager has reduced exposure to long-term government bonds and is shifting its debt portfolio towards shorter maturities amid expectations of persistent yield pressures. The firm believes liquidity conditions will support short-term papers, while inflation risks and global geopolitical tensions continue to keep longer-end yields elevated. A fund manager noted that 10-year bond yields are likely to remain above 7% over the next 6–12 months even if geopolitical tensions ease. Rising crude oil prices and inflation risks are also seen as key factors that may influence future rate actions and bond market direction.
India’s largest asset management company has reduced the duration of its debt portfolio, as it expects short-term liquidity conditions to remain supportive while long-term government bonds continue to face pressure from inflation and global uncertainties. Advertisement
The fund house has taken a cautious stance on 10-year and longer-duration bonds, with preference shifting towards shorter maturity instruments. The strategy is based on the view that liquidity in the system remains comfortable, which supports carry-focused returns in shorter-tenor securities rather than relying on price gains from long-duration bonds.
A senior fixed income fund manager at SBI Mutual Fund indicated that even if tensions linked to the U.S.–Iran situation ease, the impact on bond yields would be limited. He noted that any short-term relief could bring yields down by around 10–12 basis points, but over the medium term of 6–12 months, the 10-year government bond yield is expected to remain comfortably above 7%.
The 10-year bond yield recently stood at 7.01%, reflecting an increase of around 35 basis points since the onset of geopolitical tensions more than two months ago. The fund house currently manages debt assets worth INR 2.6 trillion (USD 27.37 billion).
The fund manager added that investors are being advised to focus more on carry returns rather than mark-to-market gains. Allocation is being encouraged towards funds with a 1–3 year duration range for core debt portfolios.
Within this segment, 1–2 year corporate bonds are being viewed as attractive due to better yields compared to government securities. While 2–3 year government bonds are trading in the range of 6.40%–6.50%, corporate bond yields are higher in the 7.55%–7.70% band.
Concerns around crude oil prices are also influencing the outlook. Sustained higher oil prices are seen as a risk factor for inflation, which could add pressure on bond yields and increase the possibility of policy rate hikes in the future.
Oil markets continue to remain firm, supported by limited progress in resolving geopolitical tensions. Although a ceasefire has held for several weeks, disruptions around key shipping routes have kept Brent crude above USD 110 per barrel.
The fund manager also indicated that inflation risks could rise further due to potential weather-related disruptions such as El Niño conditions, which may add pressure in the second half of the fiscal period and increase the likelihood of rate adjustments.
Source Reuters
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