Dhawal Dalal is the EVP and Head of Fixed Income at DSP BlackRock Investment Managers.
What has happened?
The RBI has taken measures aimed at protecting the banking system from adverse price movement in government bonds.
Bond yields have fallen recently.
The fundamental issue of volatility in the rupee's level is yet to be addressed in a meaningful way.
What to expect?
Benchmark 10Y government bond yield may trend back towards 8.55-8.60 per cent from a technical perspective in the near-term and may trade between 8.50 and 9 per cent till the forex market volatility is contained.
The recent fall in yields may provide a great opportunity to reduce risk in investors' portfolios.
Investors should take advantage of the recent spike in money market yields and consider investing in 1 year FMPs and should prefer quality and liquidity over credit and yield.