Fixed Income - Outliers - A Macro And Bond Update: IDFC AMC
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IDFC AMC Research
A persistent theme of India’s bond curve is its very attractive steepness even up to mid-duration points. This has allowed for substantial carry plus roll down benefits from a portfolio standpoint.
The assumption in this sort of a strategy is that, while bond yields can rise, they should do so relatively modestly and in an orderly fashion for the excess carry and the benefit of roll down to manifest itself.
There have been two episodes of sharp intermittent volatility in bond markets that have disturbed this trade since the start of the calendar year.
The first was the very first few months of 2021 when the global reflation trade got a fresh wind with an additional large U.S. fiscal stimulus besides a subsequent accelerated pace of reopening in many parts of the developed world.
This led to a substantial rise in global yields, commodity prices and inflation expectations.
The second was more recently with India’s consumer price index reading received in June throwing a nasty surprise versus expectations.
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