25%, investors are once again weighing whether to lock in current bond yields or wait for potentially better opportunities. While the near-term rate outlook remains uncertain amid global inflation and energy price risks, the fixed-income landscape continues to offer opportunities across select segments.
In this edition of ETMarkets Smart Talk, Dhawal Dalal, President & CIO – Fixed Income at Edelweiss Mutual Fund, shares his fixed-income playbook for investors. Bonds face a bigger threat than the Fed as global rates climbAs central banks worldwide, notably in Japan, Canada, and the euro zone, signal plans for sharper interest rate increases than the US, global markets prepare for potential volatility.
This transition puts traditional bond safety under strain while anticipating a ripple effect on stock valuations and currency fluctuations. Investors are left grappling with the challenges posed by rising inflation and growing geopolitical uncertainty, making this a precarious investment climate.
Dalal believes the bar for a near-term rate hike remains high, but sees the possibility of higher policy rates later this year. He recommends staggering investments in high-quality bonds over the next 3–4 months, while favouring 2–3-year AAA-rated bonds and money-market instruments for their attractive risk-reward profile.
He also explains how investors can construct a ₹1 crore fixed-income portfolio with a three-year horizon and why chasing higher yields without assessing underlying credit risks could prove costly. Edited Excerpts –Q) What is your take on the MPC policy meeting outcome?
Do you see interest rates going higher or lower? A) August MPC was a dovish hold, with the RBI looking through recent food and fuel inflation given benign core inflation trends.
We believe the bar for a rate hike in October remains high, although the RBI may still raise rates by up to 50 bps later this year to maintain an adequate buffer over the repo rate. 25%, are we still in an environment where investors can lock in attractive yields, or has the best part of the rate cycle already passed?
A) This is a difficult question to answer. The prevailing view is that the global inflation cycle has turned higher due to the ongoing WA crisis and its impact on energy prices.
As a result, several central banks are expected to tighten policy rates to address persistent inflation, which should put upward pressure on the short end of the yield curve. However, the long end of the yield curve is behaving differently across various regions of the world.
