A confluence of factors, such as heightened volatility in the stock market and precious metals, the RBI’s status quo on interest rates and policy stance, and a healthy growth-inflation outlook of the country, has raised investors’ interest in bonds.
Experts say this could be the right time to increase exposure to bonds as equity markets remain sensitive to earnings visibility and gold prices are witnessing sharp swings, and bonds quietly regain relevance.
Fixed income brings predictability, liquidity, and balance to portfolios when risk assets feel unsettled.
India’s benchmark 10-year bond yield surged by more than 1% on Friday after the Reserve Bank of India (RBI) signaled rates could stay at the current level for a longer period. On Monday, bond yields rose further by 0.50% to 6.765%.
“The RBI’s February policy did not deliver a surprise, but it delivered clarity. By maintaining the status quo and staying cautious on future moves, the central bank has signaled that interest rates may remain steady for longer than markets initially expected. For investor bonds, this changes the nature of the opportunity,” Ajay Kumar Yadav, Group CEO and CIO, Wise FinServ, observed.
Bond investment strategy
Experts say the right bond strategy today is about balance, not taking unnecessary risks.
They recommend focusing on income, add duration patiently, and remain uncompromising on credit quality, as during an extended pause cycle, consistency often proves more rewarding than trying to time the next policy move.
According to Yadav, it is not the phase to chase sharp rate cuts or make aggressive duration calls. Instead, the strength of fixed income today lies in earning a steady income.
Yadav highlighted that with policy rates still elevated, high-quality corporate bonds, banking and PSU debt, and short- to medium-duration strategies continue to offer attractive yields.
“While yields were more favorable a year ago, they remain sufficiently high to reward investors who stay disciplined, without forcing them to compromise on credit quality or liquidity,” Yadav said.
Yadav, however, was quick to add that avoiding duration altogether may be equally unwise.
“While near-term rate cuts may be delayed, interest rates are unlikely to stay elevated indefinitely. Investors with longer time horizons can gradually add exposure to government securities and gilt-oriented strategies in a calibrated, staggered manner to manage volatility and reinvestment risk,” he said.
Nikhil Aggarwal, the Founder and Group CEO of Grip Invest, pointed out that India is looking at a traditional, upward-sloping yield curve, with a five-year yield 50+ bps above a two-year yield. At the same time, the yield curve is largely flat in the six-month-to-two-year timeframe.
“Investors can consider investing in 1-2 year bonds at current levels while keeping allocation to lock in higher yields over the longer term,” said Aggarwal.
According to Ravi Singh, Chief Research Officer at Master Capital Services, at this stage, it is better to stick with high-quality bonds and medium-term maturity instruments rather than taking big bets on long-duration bonds.
“Investors should avoid chasing high yields and stick to safer options like PSU bonds or strong corporate issuers. Investing in a phased manner also makes sense. Overall, bonds should be looked at as a tool for stability and predictable returns, not quick gains,” said Singh.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
