Liquidity
has been a major driver in the fixed income market in the last three
months
System
liquidity currently at (-)|190000 crore has made the yield curve more
inverted with short term rates rising 25-60 bps during February due to
acute liquidity tightness.
CD rates
with 3 months to 12 month tenure are currently trading at 11.00-10.60.
This offers a good entry level point for investors.
Liquidity
is expected to remain tight till the end of March and the same may keep
short term rates under pressure. However, the current multi year high
rates provide an excellent investment opportunity.
The
market will be keenly watching the fiscal deficit road map for the next financial
year and the borrowing calendar for FY13. However, overall since the
expectations are already low, any positive surprise may boost the investor
confidence.
Short-term
funds remain attractive due to the flat yield curve and better risk-return
trade-off.
Investors
should keep a part of their portfolio allocation towards longer duration
funds to utilize the higher capital appreciation opportunity.
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