Fixed Income Investing in Turbulent Times


Covid-19, since it emerged in December 2019 has gone on to ravage the global capital markets. It has rapidly spread across continents, prompting governments around the world to close borders and declare a state of emergency, bringing economic activities to a standstill. In this scenario, the Dow Jones Industrial Average has dropped close to 35% from highs and the NSE’s Nifty 50 has given up more than 30% from its highs. The sell-off in equity assets has been universal. Even the so-called defensive consumer goods haven’t been spared, for obvious reasons.

The Case for Fixed Income

In these turbulent times, there has been a sell-off in all asset classes. This includes fixed income. Foreign investors have been selling assets across the board and bond yields have responded. The yields on AAA corporate bonds in the last 15 days have widened by around 70 basis points in the three and five-year spaces.

What can we do now?

The spreads between AAA corporate bonds and the repo rate is around 256 basis points or 2.56%. AAA corporate bonds are yielding close to around 8% and in the current economic scenario with low inflation, low-interest rates and a probability of a rate cut from the RBI. This opens up a massive buying opportunity in the AAA corporate bond space as the risk-adjusted returns at these levels look very attractive. Furthermore, if locked in before the 1st of April, the investor will receive benefits of 4-year indexation. The probability is very low for yields to stay at the current levels. It is prudent that we act swiftly.

Contact us for further details and make a smart investment decision today. Time is of the essence in this situation.

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