Corporate bonds look attractive now

Four to six years tenure will efficiently capture the current rate cycle

- SAIKAT NEOGI

As corporate bond funds are offering higher yields compared to bank fixed deposits, investing in these long-duration debt schemes can be a good option. However, investors must evaluate the credit quality of the portfolio and ensure that a larger portion of the portfolio is invested in bonds with ratings AA+ and above for safety.

After a series of rate hikes since May last year, the Reserve Bank of India had left the repo rate unchanged at 6.50% for the second consecutive monetary policy. The rate-setting panel also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth. As a result, corporate bond issuances have spiked in the last two months.

Attractive spreads

Most of such bond issuances can be seen in the medium-term bucket of three to five years. The spreads are indeed looking attractive, especially for investors seeking to invest with a maturity profile of between four to six years. Also, with systemic liquidity not expected to give any negative surprise as the RBI has committed to comfortable liquidity, the spreads will likely stay in current range.