Mutual funds set to sell more government bonds after RBI rate hike
Managers cut longer-dated holdings and shift to short-term assets amid steeper tightening cycle expectations
Indian mutual funds are expected to sell more government bonds following a rate hike by the Reserve Bank of India, fund managers said. The central bank increased rates for the first time in nearly four years and signaled further hikes as inflation rises. Since July, funds have offloaded $4.5 billion in government bonds. Mansi Sajeja, a Fixed-Income Fund Manager at SBI Mutual Fund, stated that funds reduced their exposure to longer-dated bonds as expectations of rate hikes changed.
Amit Somani, Deputy Head of Fixed Income at Tata Asset Management, expects long-term bond yields to rise to 7.20-7.40 per cent. Vikas Garg, Head of Fixed Income at Invesco Mutual Fund, said several factors, including global rate hikes and high global bond yields, prompted funds to trim duration risk by reducing government bond exposure.
The RBI's heavy open market bond sales and concerns about repeating such operations have altered demand-supply dynamics, fund managers noted. Axis Mutual Fund is now preferring one-year to three-year high-quality corporate bonds, while Aditya Birla Sun Life AMC likes ultra-short term debt and Bandhan Asset Management has reduced its weighted average bond duration to under a year.
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