India's DSP MF favours 5-year, long-tenor bonds over 10-year paper, executive says
- Indian bond yields have eased, led by the shorter end of the yield curve
MUMBAI: India’s DSP Mutual Fund plans to shift to a “buy-on-dips” approach, favouring five-year and longer-duration government securities, while avoiding adding much of the 10-year benchmark bond due to weak demand, a senior executive said on Monday.
“For mutual funds, I would like a barbell strategy of five-year and long bonds,” Sandeep Yadav, head of fixed income at DSP Mutual Fund, told Reuters’ Trading India forum.
A barbell strategy is an investment strategy in which the portfolio is concentrated at two opposite ends of a maturity or return spectrum, while largely avoiding the middle.
The fund house, which manages debt worth around 690 billion rupees ($7.28 billion), believes that the market has shifted to a buy-on-dips approach from a sell-on-rally strategy in recent months.
Indian bond yields have eased, led by the shorter end of the yield curve, after the central bank held key policy rates and announced measures to attract dollar inflows on June 5.
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The spread between the five-year and 10-year bond yields has doubled to 40 basis points in the last few sessions, reflecting stronger demand at the shorter end.
Yadav said the Reserve Bank of India has been the biggest buyer of the 10-year bond over the last two years, and may scale back purchases amid firm foreign exchange inflows, making the risk-reward unfavourable.
The fund manager does not expect the RBI to hike rates in 2026, and said any action next year would depend more on economic growth than on temporary inflation spike.
“I believe a large part of inflation risk is recency bias, and we have seen such low inflation that a risk of 5.5%+ for a few months sounds very high - but it is still within RBI’s range,” Yadav said.
In the immediate term, Yadav prefers corporate bonds for their higher yields, and may revert to government securities from July-August as their potential inclusion in the Bloomberg Global Aggregate Index could attract inflows.
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