Stories
Indian Debt Funds Set to Extend 4.5 Billion Bond Selloff
- •Indian mutual funds plan to continue selling government bonds after offloading 4.5 billion dollars since July following the Reserve Bank of India policy shift.
- •The central bank raised rates for the first time in nearly four years and signaled further increases to combat rising inflation.
- •Asset managers have reduced their exposure to longer-dated government bonds as expectations grow for a steeper rate-tightening cycle.
- •Fund managers are shifting their investments from long-duration government bonds to ultra-short duration assets and corporate debt.
Key Questions Answered
Indian mutual funds are offloading government bonds because the Reserve Bank of India raised interest rates for the first time in nearly four years, triggering expectations of a longer and steeper rate-tightening cycle. Asset managers are reducing their duration risk in response to this hawkish policy shift and concerns over rising inflation.
Indian mutual funds have offloaded $4.5 billion in government bonds since July, which includes net sales of 378 billion rupees between July and September and a further 51 billion rupees ($527.08 million) sold in the three sessions immediately following the rate hike.
While shedding long-duration government bonds, asset managers are moving their funds into ultra-short duration assets across both government and corporate debt. For instance, Axis Mutual Fund favors high-quality corporate bonds with maturities of one to three years, while Bandhan Asset Management has reduced its weighted average bond duration to under a year.
