WHY IT MAY NOW BE A GOOD TIME FOR DEBT INVESTMENTS

For investment in debt instruments, you can purchase them directly, or you can invest in debt funds. The relevant parameter is yield-to-maturity or YTM. This is the annualized return you will earn, provided you hold the bond till maturity. The higher the YTM at the entry level, the better for you.

- JOYDEEP SEN

In the current context, The Reserve Bank of India (RBI) cut the signal repo rate from 6.5% to 5.5% between February and June 2025. Yields fell, boosting existing bond prices, but YTM declined as price and yield move inversely. Recently, yields have risen again, offering a better entry point. The 10-year government bond yield, at 6.2% in May, is now 6.51%, while the 30-year yield has climbed from 6.75% in April to 7.2%.

Where is the opportunity?

The government bond yield curve is the base or reference point for yield levels on other bonds.

There are corporate bonds, which trade at a yield or YTM higher than that of government bonds, due to their relatively higher credit risk. Subsequent to the reference point i.e. government bond yields moving up, corporate bond yields have moved up as well. Hence, if you are entering corporate bonds today or investing in debt funds, you have a better entry point than you would have had, say, four months ago.