The pivot from RBI will help the government, which has said it
will sell 1.1 trillion rupees more debt for the fiscal half ending in March.
The Reserve Bank
of India is making longer-tenor sovereign bonds attractive again.
Quantum
Mutual Fund has moved to the 10-14-year segment after staying in duration
of up to three years in August in its 691 million rupees ($9.4 million) Dynamic
Bond Fund. UTI Asset Management Co. has turned overweight on bonds maturing in
up to 15 years, after cutting duration two months ago.
The strategy
change was prompted by a series of liquidity measures announced by the Reserve
Bank of India earlier this month, including doubling the size of open
market operations. That’s spurred expectations that the central bank would
intervene regularly to keep yields anchored. Confidence over RBI support has
even outweighed concern over the government’s plan to increase debt sales.
“We have gone from
being very defensive in August to aggressive now in positioning toward longer
bonds and one big factor behind that is a better clarity on the RBI’s
intervention plan,” said Pankaj Pathak, fixed income fund manager at Quantum
Asset. “The RBI signaling that they will purchase bonds on weekly basis has
given a big comfort,” he said.
Prior to the RBI’s
support measures announced on Oct. 9, some money managers were piling into
India’s short-tenor debt from bills to credit as concerns over a virus-ravaged
economy and record borrowings prompted them to avoid risks.
The pivot from RBI
will help the government, which has said it will sell 1.1 trillion rupees more
debt for the fiscal half ending in March. More than 40% of the remaining year’s
bond sales will be in 10-year to 14-year maturities.
Expectations for
easing inflation are also likely to support longer tenors. RBI Governor
Shaktikanta Das said in the policy address that the monetary authority sees the
recent surge in inflation as transient.
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