The bond yields are falling and the five-year paper has rallied on the back of poor GDP numbers. Lakshmi Iyer, CIO-Debt & Head Product at Kotak Mahindra AMC, spoke to CNBC-TV18 about the impact of falling bond yields on commercial paper.
"One is also seeing a rally specifically at the short-end of the yield curve when it comes to non-government that is the corporate bonds because of easy liquidity and lower benchmark rates and also because the mutual funds are getting money into the short-term funds. All this is also leading to buoyancy in the corporate bond segment," Iyer said on Wednesday.
"There is a dichotomy," she said, "One is that the 10-year benchmark, which is Nifty equivalent to bond markets is stagnating. Entire last month, we saw this bond inch up 20 basis points post rate cut whereas world over the yields have come down and are headed into the negative region. Two, within the segments, x of this 10-year, the rest of the segment be it the 5-year, 7-year, 9-year ease into yields."
"Going forward there is an expectation of the new 10-year benchmark bond yield which could cut-off 15 basis points lower than where the current 10-year is trading. Overall as well with the rate cut expectations being live, we could start seeing a continuation of softer bond yields in the coming months", said Iyer.
"With the trajectory for interest rates seem to be headed lower, the new 10-year yield could be near 6.2-6.3 percent," she said.
When asked where one can invest money right now, she said, “Going forward given the volatility, given the vulnerability though the trajectory is headed lower for bonds yields, it may not be a one-way downward movement and given that is going to be a reality, we believe that a similar kind of active management case stands. Therefore investors could do well with dynamic bond funds in this kind of market scenario but one needs to have a three-year investment horizon even if it were to be fixed income investing.”