MUMBAI: India’s Aditya Birla Sun Life Asset Management Company is turning overweight on longer-duration government bonds, including 10-year, 30-year and 40-year maturities as it bets on at least one more rate cut, a senior executive said on Monday.
“If we look at the sovereign yield curve, the one-three year bonds have rallied, but the 10-year, 30-year and 40-year bonds are at a very good space and as a result we are overweight duration, looking at that point,” said Sunaina da Cunha, co-head fixed income (credits) at ABSL AMC, that manages debt assets worth 2.23 trillion rupees ($25.78 billion).
Even 10-year state government bonds offer attractive spreads, she said, adding the fund will stick to an accrual strategy.
The 10-year benchmark 2035 bond yield stood at 6.36%, while 30- and 40-year yields, were at 7.01% and 7.06%, respectively.
With the Reserve Bank of India’s policy rate at 5.50%, the fund manager expects at least one more 25-basis-point cut.
“Food inflation would be kept under control, and good monsoon and spatial distribution will also provide us benefit. This opens up reasonable amount of space for a rate cut,” she said.
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Fiscal policy remains in consolidation mode and has already done its part; with inflation running below target, it’s now up to monetary policy to respond.
“A 25 basis point rate cut is definitely on the cards, and there is a possibility of another 25 bps after that.”
Despite the preference for longer duration government bond exposure, the fund house prefers lower tenors on their corporate bond investments.
“On the shorter end, we are overweight on short-term two-three years corporate bonds, because there is still a decent spread in the two-three years bonds, so there is juice there.”
The AAA-rated corporate bond yields were at a spread of around 80 basis points over the corresponding government bond yields.
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