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Time of India
16-07-2025
- Business
- Time of India
Fixed income market outlook: why short-term bonds may outperform in 2H 2025
Tired of too many ads? Remove Ads Geopolitical unrest pushes investors toward bonds Key macro trends shaping Indian bond markets Surplus banking liquidity: Softening inflation: Tired of too many ads? Remove Ads Mixed economic data: Currency stability: Limited upside seen in long bonds Why short-term corporate bonds look attractive Surplus system liquidity and subdued credit growth favor short-end corporate bonds. A shallow rate cut cycle and limited OMO (Open Market Operations) purchases further restrict long-duration bond rallies. Corporate bonds with maturities of 1 to 5 years are expected to outperform long bonds from a risk-reward standpoint. AAA-rated corporate bonds maturing within 3 to 10 years are likely to offer yields between 6.50% and 6.75%, providing incremental gains of 50–100 basis points. Global factors at play Investment strategy: Focus on short to medium duration Maintaining allocations to short- to medium-term bond funds. Gradually adding duration during yield spikes. Favoring government securities (G-Secs) in long-term portfolios while increasing exposure to 1–5-year corporate bonds for better near-term returns. What should investors do? In a world grappling with geopolitical uncertainties and changing interest rate dynamics, India's bond market stands at a crucial to the Fixed Income Market Outlook (July 2025) report by Axis Mutual Fund , abundant liquidity, falling inflation , and a shallow rate cut cycle are shaping a nuanced bond market strategy for the months geopolitical tensions between Israel and Iran have driven global investors towards safer assets like bonds and gold. In the US, 10-year Treasury yields slipped by 17 basis points to 4.23%. Meanwhile, Indian 10-year government bond yields inched up by 3 basis points to settle at 6.32%, largely due to abundant banking liquidity and moderating inflation Reserve Bank of India (RBI) conducted a ₹84,975 crore VRRR (Variable Rate Reverse Repo) auction to manage excess liquidity. Overnight rates are currently trading below the Standing Deposit Facility (SDF), prompting the central bank to maintain short-term policy headline inflation fell to 2.8% in May 2025, thanks to easing food prices and an expected above-normal monsoon. Analysts expect inflation to stay around or below 3% in the near production slowed to 1.2% in May, with the mining and electricity sectors dragging overall growth. However, India posted a robust current account surplus of 1.3% of GDP in Q4FY25—the strongest in over 15 years—driven by resilient service exports and front-loaded goods shipments ahead of US rupee remained broadly stable against the US dollar, as the greenback weakened against most major bond markets have benefited from a strong rally over the past 12 months, analysts now expect the upside to be limited, particularly for long-duration government bonds. With much of the rate-cut-driven rally already priced in (10-year yields have already fallen by 70–75 bps over the last year), experts predict that yields will likely remain range-bound between 6% and 6.40% for 10-year G-Secs in the coming report emphasizes a clear tactical shift towards short-duration bonds. Several factors support this view:Globally, while tariff uncertainties between the US and its trading partners are easing, negotiations remain ongoing. The US Federal Reserve is expected to resume its rate-cutting cycle soon, with two cuts likely in 2025 as growth slows and labor market data weakens. However, the Fed's cautious approach keeps markets the current environment, investment experts recommend:With the bulk of the bond rally behind us, the report advises investors to focus on short-term corporate bond funds and tactical gilt funds. Selective credits also remain attractive due to improving macro fundamentals and corporate short, the fixed-income space continues to offer opportunities—but disciplined portfolio allocation, duration management, and selective sector exposure will be critical for capturing returns in 2H 2025.(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
Economic Times
16-07-2025
- Business
- Economic Times
Fixed income market outlook: why short-term bonds may outperform in 2H 2025
Synopsis India's bond market is evolving amid geopolitical tensions, softening inflation, and stable currency trends. Axis MF's July 2025 outlook favors short-term corporate bonds over long-duration G-Secs, citing better yields and risk-reward. Investors are advised to stay tactical with duration and focus on selective credits for 2H 2025. In a world grappling with geopolitical uncertainties and changing interest rate dynamics, India's bond market stands at a crucial juncture. ADVERTISEMENT According to the Fixed Income Market Outlook (July 2025) report by Axis Mutual Fund, abundant liquidity, falling inflation, and a shallow rate cut cycle are shaping a nuanced bond market strategy for the months geopolitical tensions between Israel and Iran have driven global investors towards safer assets like bonds and gold. In the US, 10-year Treasury yields slipped by 17 basis points to 4.23%. Meanwhile, Indian 10-year government bond yields inched up by 3 basis points to settle at 6.32%, largely due to abundant banking liquidity and moderating inflation trends. The Reserve Bank of India (RBI) conducted a ₹84,975 crore VRRR (Variable Rate Reverse Repo) auction to manage excess liquidity. Overnight rates are currently trading below the Standing Deposit Facility (SDF), prompting the central bank to maintain short-term policy interventions. India's headline inflation fell to 2.8% in May 2025, thanks to easing food prices and an expected above-normal monsoon. Analysts expect inflation to stay around or below 3% in the near term. Industrial production slowed to 1.2% in May, with the mining and electricity sectors dragging overall growth. However, India posted a robust current account surplus of 1.3% of GDP in Q4FY25—the strongest in over 15 years—driven by resilient service exports and front-loaded goods shipments ahead of US tariffs. ADVERTISEMENT The rupee remained broadly stable against the US dollar, as the greenback weakened against most major currencies. While bond markets have benefited from a strong rally over the past 12 months, analysts now expect the upside to be limited, particularly for long-duration government bonds. With much of the rate-cut-driven rally already priced in (10-year yields have already fallen by 70–75 bps over the last year), experts predict that yields will likely remain range-bound between 6% and 6.40% for 10-year G-Secs in the coming months. ADVERTISEMENT The report emphasizes a clear tactical shift towards short-duration bonds. Several factors support this view: Surplus system liquidity and subdued credit growth favor short-end corporate bonds. A shallow rate cut cycle and limited OMO (Open Market Operations) purchases further restrict long-duration bond rallies. Corporate bonds with maturities of 1 to 5 years are expected to outperform long bonds from a risk-reward standpoint. AAA-rated corporate bonds maturing within 3 to 10 years are likely to offer yields between 6.50% and 6.75%, providing incremental gains of 50–100 basis points. Globally, while tariff uncertainties between the US and its trading partners are easing, negotiations remain ongoing. The US Federal Reserve is expected to resume its rate-cutting cycle soon, with two cuts likely in 2025 as growth slows and labor market data weakens. However, the Fed's cautious approach keeps markets volatile. ADVERTISEMENT Given the current environment, investment experts recommend: Maintaining allocations to short- to medium-term bond funds. Gradually adding duration during yield spikes. Favoring government securities (G-Secs) in long-term portfolios while increasing exposure to 1–5-year corporate bonds for better near-term returns. With the bulk of the bond rally behind us, the report advises investors to focus on short-term corporate bond funds and tactical gilt funds. Selective credits also remain attractive due to improving macro fundamentals and corporate profitability. ADVERTISEMENT In short, the fixed-income space continues to offer opportunities—but disciplined portfolio allocation, duration management, and selective sector exposure will be critical for capturing returns in 2H 2025. (Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. 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Business Standard
15-07-2025
- Business
- Business Standard
RBI's 3-day VRRR sees weak demand amid GST outflows, reporting week
The Reserve Bank of India's (RBI's) three-day Variable Rate Reverse Repo (VRRR) auction on Tuesday saw tepid demand, with bids totalling ₹57,450 crore against the notified amount of ₹1 trillion. Market participants said banks were reluctant to park higher amounts at the auction due to the fortnightly reporting cycle at the end of the current week and uncertainty over the quantum and tenor of upcoming VRRRs. With ₹1.5 trillion already parked at the seven-day VRRR auction on Friday, banks appeared hesitant to lock in additional funds. 'The demand was low because it's a fortnight, and there is uncertainty around how many more VRRRs will be conducted and for what tenure,' said a dealer at a state-owned bank. 'Banks parked ₹1.5 trillion on Friday; they were not willing to lock in more funds,' he added. 'The liquidity surplus is now near ₹2.5 trillion, and overnight rates inched up today (Tuesday),' said a dealer at a primary dealership. 'Banks would like to keep some surplus with them ahead of GST outflows,' he added. The overnight Weighted Average Call Rate (WACR) was trading at 5.38 per cent, compared to the previous day's close of 5.31 per cent. The overnight triparty repo (TREPS) rate was trading at 5.30 per cent, up from 5.19 per cent on Monday. WACR is the operating target of the monetary policy, which the central bank aims to keep close to the policy repo rate. A net surplus liquidity of around ₹3 trillion in the banking system has largely kept the overnight WACR near the Standing Deposit Facility (SDF) rate of 5.25 per cent and below the repo rate of 5.50 per cent, with TREPS rates also slipping below the SDF. The RBI conducts VRRR operations to absorb surplus liquidity from the banking system and anchor short-term interest rates closer to the policy repo rate.
Business Recorder
10-07-2025
- Business
- Business Recorder
India bonds flat; traders eye debt supply, RBI liquidity move
MUMBAI: Indian government bonds ended largely unchanged on Thursday as traders awaited a fresh debt supply and further cues on liquidity management from the central bank. The yield on the benchmark 10-year bond ended at 6.3156%, after closing at 6.3136% on Wednesday. Bond yields move inversely to prices. 'Market sentiment remains cautious amid tight liquidity signals from the Reserve Bank of India via Variable Rate Reserve Repos (VRRR),' Pawan Somani, founder of Infinask Advisors, said. The 10-year note has hovered between 6.28% and 6.32% since the start of the month, and the trend is likely to continue amid fresh triggers, traders said. New Delhi plans to sell bonds worth 250 billion rupees ($2.92 billion) on Friday, including a new seven-year note. RBI's liquidity withdrawal move weighs on India bond prices The note traded at around 6.25% in the 'when-issued' segment of the trading platform on Thursday. Market focus is also on liquidity levels in the banking system and on any further measures by the RBI to drain the surplus. The RBI's second liquidity-absorbing operation in four sessions on Wednesday pushed overnight rates above the floor of the policy corridor. The newly launched Secured Overnight Rupee Rate (SORR) has stayed above the floor of monetary policy corridor for the second straight session after slipping below the Standing Deposit Facility rate on Monday and Tuesday. The central bank removed 973 billion rupees via a two-day VRRR\ on Wednesday. Traders said clarity on a potential U.S.-India trade deal, which U.S. President Donald Trump said was 'close', would be a key trigger for the market. Rates India's overnight index swap rates (OIS) were mostly flat as traders awaited more cues, with the trading range shrinking across the curve. The one-year OIS rate was at 5.515%, and the two-year OIS rate was at 5.4875%. The liquid five-year OIS rate was at 5.69%.
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Business Standard
08-07-2025
- Business
- Business Standard
RBI to conduct 2-day VRRR auction to drain Rs 1 trillion in liquidity
The Reserve Bank of India (RBI) plans to conduct a two-day Variable Rate Reverse Repo (VRRR) auction on Wednesday for a notified amount of Rs 1 trillion. This move comes as system liquidity remains in surplus at Rs 3.4 trillion (as of Monday), despite two seven-day VRRR auctions by the central bank. The surplus liquidity has kept the overnight weighted average call rate (WACR) — the operating target of monetary policy — near the Standing Deposit Facility (SDF) rate of 5.25 percent, and much below the repo rate of 5.50 percent. 'System liquidity will only increase from here as government expenditure picks up, and from September, the CRR cut will come into effect. This could push liquidity levels to as high as Rs 5 trillion by November–December, assuming neutral impact from foreign exchange operations. So, they had to move early to ensure overnight rates remain within the policy corridor. This operation will shift the weighted average call rate closer to the repo rate and, more importantly, pull the TREPS rate above the SDF, which it had consistently fallen below despite previous 7-day VRRRs,' said Gaura Sen Gupta, Chief Economist at IDFC FIRST Bank. 'The 100 bps CRR cut will release Rs 2.5 trillion into the banking system.' The overnight WACR settled at 5.26 percent on Tuesday, while the overnight TREPS rate settled at 5.13 percent. Market participants said that the auction, maturing on Friday, is expected to draw strong demand from banks. 'Because it's a two-day VRRR, it will attract good demand from banks. The RBI may continue such short-tenure operations as long as surplus remains above 1 percent of NDTL. With overnight rates currently trading below the repo rate, the central bank is using VRRRs to keep rates within the LAF corridor, ensuring orderly liquidity conditions without aggressively draining surplus,' said V R C. Reddy, head of treasury at Karur Vysya Bank. The RBI's VRRR operations are aimed at absorbing surplus liquidity from the system and anchoring short-term rates closer to the policy repo rate. The RBI had received bids amounting to Rs 1.70 trillion at its seven-day Variable Rate Reverse Repo (VRRR) auction on Friday, against the notified amount of Rs 1 trillion. The central bank accepted Rs 1 trillion at a cut-off rate of 5.47 percent. The recent liquidity surplus can largely be attributed to higher government spending and lower-than-expected GST collections, which have eased the usual liquidity pressures. As a result, the liquidity drain was not as sharp as anticipated, experts said, adding that with the RBI already having reduced the Cash Reserve Ratio (CRR), its room for deploying other measures for liquidity withdrawal apart from VRRR is limited.
