Fundview: UTI Asset Management sees sweet spot in India's 2-3 year bonds versus 10-year

UTI Asset Management

07/03/2025 07:27

By Siddhi Nayak and Dharamraj Dhutia

MUMBAI, March 7 (Reuters) - India's two- to three-year government bond yields are an attractive investment opportunity and UTI Asset Management Company is more bullish on this part of the curve versus the 10-year bond, an executive from the fund house said.

India's 10-year benchmark bond yield IN067934G=CC was at 6.68%, while the two-year and three-year bond yields were around 6.53%-6.57% on Friday.

"The sweet spot on the yield curve is somewhere in the 2-to-3-year segment. We are more bullish (on this segment) than the 10-year," said Vetri Subramaniam, chief investment officer at UTI Asset Management Company, which manages debt assets worth around 3.50 trillion rupees ($40.18 billion) as of January.

Yields on the longer duration bonds would likely have limited room to decline from this point as U.S. yields remain elevated, he added.

Bond yields fall when prices rise.

The 10-year U.S. Treasury yield US10YT=RR was at 4.26%, and the spread with the Indian counterpart is 243 basis points. The spread was at 255 bps at the start of the week.

In addition, the premium on (India's 10-year-bond yield) compared to its U.S. counterpart "is not very attractive and it does not fully compensate investors for the currency risk," Subramaniam said. "The U.S. market is sucking the oxygen out of the room for every other country."

"Our view is that the yield curve is flattening, and steepening, if any, will happen because the short-term (yields) fall due to comfortable liquidity conditions," he added.

Typically, demand for short-term bonds ramps up when liquidity conditions are comfortable as there is more money in the system, pushing down yields.

The Reserve Bank of India has infused over 4.50 trillion rupees into the banking system since mid-January through bond purchases, forex swaps and repos maturing in early-April. It will further inject around 1.87 trillion rupees through bond buying and forex swaps in next three weeks.

The fund manager expects the current central bank's rate cutting cycle to be shallow, and sees the possibility of two more cuts, with a reasonable probability in April.

($1 = 87.1100 Indian rupees)

 (Reporting by Siddhi Nayak and Dharamraj Dhutia; Editing by Janane Venkatraman)

 ((Dharamraj.Dhutia@thomsonreuters.com;))