Indian mutual funds are stepping up government bond sales after offloading $4.5 billion (378 billion rupees) from July through September, driven by the Reserve Bank of India’s (RBI) first rate hike in nearly four years and rising inflation concerns.
📌 Key Numbers & Market Shift:
• ₹51 Billion ($527.08M) Sold: Net bond sales by mutual funds in just 3 sessions following the RBI’s rate hike, building on the Q3 selloff.
• ₹1 Trillion Sold by RBI: The central bank executed its largest net open-market bond sale in over a decade last month, significantly tightening market liquidity.
• Yields Hit Multi-Year Highs: The 10-year Indian government bond yield reached ~7.35% (a 3-year peak), while the 5-year yield surged 70 bps in 2 months to 7.05%. Analysts expect long-term yields to rise to 7.20%–7.40%.
• Duration Risk Reduction: Asset managers are aggressively cutting portfolio duration—with Bandhan AMC slashing its average bond duration from 12 years to under 1 year.
💡 Investment Strategy Pivot: Fund houses like Axis, Aditya Birla Sun Life, and Bandhan are reallocating capital out of long-term government debt and into 1-to-3-year ultra-short corporate bonds and high-quality liquid money market assets to manage interest rate risks.