Bond yields have been falling lower for some time and this is the scene across the globe. And after the Fed Reserve hinted at rate cuts, bond yield on 10-year benchmark bonds further dived to a 20-month low of 6.82%. And while this is good news for investor in bonds, the rally in the bond markets as per experts in the domain shall not be long-lasting.
Why are the yields on bonds going down?
The reason as jotted down by an expert for the decline in bond yield and hence an increase in their price is mainly because the RBI has been constantly lending support to the markets given the current landscape of low inflation and also as in future softer policy stance is expected world over, so the ongoing OMOs as well as rate cut move are helping the bond markets.
Also, there is hailed a view that while the repo rate cut and falling yields is providing a much-needed breather for the bond market given the crisis due to IL&FS, it is unlikely that the repo rates will hold sub 6% for a long time. And if at all this continues, it shall be when the inflation continues at the current levels or growth trajectory gets stronger.
Other group of experts however opines that the surge in bond markets will continue as long as there remains more room for rate cut. And bond yield will follow in the repo rate.
So, as a best course, experts suggest investors with moderate risk appetite to go with short term debt funds and if you seek higher returns, you still can consider betting on long duration funds but this comes with an extra risk.