The debt market has been waiting for its second coming for a long time. The stage is set for the prophecy to finally come true. In our last update, we mentioned the short-duration category was showing signs of revival due to rising rates. Fast forward by six months, a look at the median numbers highlights the second coming of 'returns' in these funds. Upping the return game These funds' yield-to-maturity (YTM) have improved owing to rising rates, strengthening the case for short-duration debt funds. YTM minus expenses is a rough indicator of how much return you can expect and the trend is pleasing, as can be seen from the graph Rising return expectations. Stabilising assets The category had witnessed heavy outflows when the rate started going up initially. However, the AUM has stabilised now, so that's another positive. Preference for safer government bonds The category, by and large, has been playing it safe, avoiding credit risks and investing mostly in bonds of AAA-rated companies, the most creditworthy of all. These funds have also increased their investments in government bonds, especially those that will mature in three to five years, while investments in lower-rated bonds remain extremely low. So, in a nutshell, there is little to worry about the quality of portfolios. The 3 t
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