Tag: bonds

Are we setup up for a bond rally?

ICICI came out with an interesting note on why they expects Indian bonds to rally. They outline 5 factors:

  1. Improving current account balance
  2. Falling inflation
  3. Fiscal consolidation
  4. Rising savings rate
  5. Substantial FII inflows

Related: Long-term Gilt Funds, where we layout the same thesis.

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Why Diversify?

One of the main benefits of diversification is that if you invest in a group of assets with low correlations to one another, then you are likely to get the highest return for a given level of risk. But has it really worked that way for Indian investors? Here’s what we found while we crunched some numbers using CNX 100 and GSec 8+ year total return index since 2003.


Yes, correlations are low: 0.0624. And we have a scatter-plot to prove it:

CNX 100-GSEC_SUB_8-2003


Here’s how the yearly returns look like (%):


An 80:20 stocks:bonds portfolio would have had an average return of 21.43% vs 25.81% of a stock-only portfolio – a give up of 4.38% in returns – with lower volatility.

The question is, is it worth the trade off if you can stomach the volatility?

Related: BOND ≠ BORING

Bonds, Rates and USDINR Update

The Yield Curve

Lets put the current zero-coupon yield curve in context.

Jan 2011 vs. Now


Jan 2012 vs. Now


Jan 2013 vs. Now


Indian 10 yrs vs. US

After the initial Modi euphoria, the spread between Indian 10 yrs and US 10 yrs started to revert back to its mean:


Total Return Indices

Investors in the long bond are yet to recover from the July 2013 draw-down but this year is looking good. Long-bond might just be the place to be as the RBI is widely expected to get into easing mode later this year/early next year.

Cumulative Returns Since 2000

short bond total return

intermediate bond total return

long bond total return

Cumulative Returns Since 2010

short bond returns since 2010

intermediate bond returns since 2010

long bond returns since 2010

Bond ≠ Boring

Returns have been volatile for bond investors.

gsec monthly returns

Can’t really sell “stability” here.


A new normal past the euphoria and the hangover?



In closing

With inflation somewhat stabilizing and the NDA-II government wanting to kick start growth, bonds are getting interesting again. And when rates start moving, currencies cannot be far behind.

Stay updated on the latest news related to Indian interest rates here. Its curated.