How To Handle Erratic Bond Markets

Bond markets have been in turmoil ever since rbi started raising interest rates. Here’s how investors can manage their fixed income investments.

- Avneet Kaur

THE BOND MARKET is passing through a rough patch. Multiple shocks over last six months—sudden tightening by US Federal Reserve towards the end of 2021, spike in commodity prices due to geopolitical tensions, RBI’s sudden move to increase rates to check inflation and now fears of a recession—have triggered a sell-off-in bond markets, pushing up yields. Here’s how debt investors can do well despite the bumpy ride.

Inflation to Ease?

Inflation has been at the core of this chaos. Retail inflation was above 7% for third month in a row in June. It had touched an eight-year-high of 7.79% in April. This is above RBI’s target of 4% (+- 2%). But central bank is hopeful. Governor Shaktikanta Das says inflation may ease gradually in second half of the financial year. “With supply outlook appearing favourable and several high-frequency indicators pointing to resilience of the recovery in first quarter (April-June) of FY23, our current assessment is that inflation may ease globally in second half of FY23,” says Das.