Debt fund managers bet on shorter duration play to ride RBI easing.

by mehekkaoberoi
  • Debt fund managers expect shorter duration schemes to be better-placed to ride Reserve Bank of India’s (RBI) move to ease policy rates, with longer duration funds vulnerable to spikes in yields given the government’s borrowing programme.
  • On May 22, the RBI announced 40 basis points (bps) cut on repo rate to four per cent, while keeping room open for more easing measures.
  • If the inflation trajectory evolves as expected, more space will open up to address the risks to growth, stated the RBI governor Shaktikanta Das said in his statement.
  • Liquidity and rate cut are positive for shorter-end of the curve. The domestic g-sec yields have come down, but here yields will also be dependent upon weekly supplies. In the short and medium-term space, there is more scope for further compression.
  • Fund managers expect yields to remain elevated at the longer-end of the yield curve in light of government’s borrowing plans.
  • The government recently raised its borrowing estimate for FY21 to Rs 12 trillion from the earlier estimate of Rs 7.8 trillion.
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