'We see a strong tactical opportunity in long-duration debt funds'

Bond yields in India have risen sharply this year, with government securities (g-secs) up around 50 basis points amid multiple uncertainties — rising crude oil prices fuelling inflation fears, concerns over a wider fiscal deficit due to a higher import bill, and speculation of further US Fed rate hikes.

- Jash Kriplani

The markets, Vikas Garg, head of fixed income, Invesco MF, said long-duration funds may offer tactical opportunity, especially if the West Asia war shows signs of de-escalation. He also explains how investors can position debt portfolios in current environment. Edited excerpts from the interview:

Much of the bad news is already reflected in prices. Government bond yields are up about 50 basis points, and corporate bond yields have risen even more nearly 90 to 100 basis points (when yields rise, bond prices fall, and vice versa).

That is a significant move in a short period. The West Asia war has now been running for close to 90 days, and the stakes for the global economy are very high.

At this point, I believe yields are more likely to decline from current levels than rise further. Any positive development on the geopolitical front could trigger a fairly quick recovery in bond markets.

At the start of the year, markets were expecting rate cuts from major central banks, including the US Federal Reserve. That picture has changed considerably. Markets are now pricing in at least one rate hike over the next one year and the US Treasury yields have already risen 60 to 65 basis points within just two months.