Fixed Income Update

Quick Take:

  • Reserve Bank of India cut the benchmark repo rate by 25 basis points to 6% in its August meeting.
  • From a structural perspective it appears that we are very close to the end of the rate cycle.
  • In the near term we expect the markets to remain range-bound.
  • Investor should look to invest in short-term corporate bond funds, which are relatively insulated from duration risks but take advantage of the steep short term yield curve.

The Monetary Policy Committee of the Reserve Bank of India cut the benchmark repo rate by 25 basis points to 6% in its August meeting. This reduction was in line with market expectations as reflected by the subsequent muted reaction by the bond market. The 10 year government bond closed the month at 6.53%, ~6 bps lower than its previous month end close.

Headline consumer price index (CPI) for the month of July was reported at 2.36% marginally up from previous month’s reading of 1.54%. This was on account of cost of housing, energy and clothing which rose further coupled with food prices which fell at a softer pace.


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Portfolio data as on 31st August, 2017. Source of data: Bloomberg, ACEMF

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