What’s your outlook on the Indian debt markets and yield curve? Do you expect high levels of volatility to persist over the next few months?
In the last one year we have seen a very sharp and one-way move in the fixed income markets across the curve. While the 10y has moved by 140 basis points in that period, the 1y point has moved by more than 200 basis points. So if we talk in terms of signals and noise we would find that last year has had very little noise and more of a one-way signal. That’s something which we expect to change going forward. Most of the known unknowns are priced in by the markets. Hence, going ahead, we will see more of two-way movement.
The ratio of signal and noise will be dominated by noise which would mean that we will see lots of volatility without any similar one-way movement in yield as we had seen the previous year. The only caveat to the above scenario is that we are treading on unknown territory in terms of the macro economic variables. Globally, in general, the dynamics of growth and inflation are unlike anything we have seen in recent times, and this adds to the unpredictability in fixed income markets. It also compels us to add a bit of caution to the view we have elucidated previously.
Can you elucidate how the impending rate hikes by the Federal Reserve will affect the Indian debt markets?
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