Pal shared his take on the weekly Fixed Income market outlook .
He said he expected the US Fed to hike rates by 25 bps next week, but he pointed out the crucial aspect will be the future guidance. Nonetheless we believe that the rate hiking cycle is on its last legs and continue to believe that this is a very good time to invest into Fixed Income as bond yields have risen and risk reward is favourable for fixed income investment with real yields positive across the curve, he said.
The best time to invest in Fixed Income is when the rates are rising and in this context, we think this is the right time for investors to increase their allocation to Fixed Income as monetary tightening enters its last phase both in India and globally, he added.
He said he expected the 10-year benchmark bond yield to keep trading in a range of 7.30% to 7.50% till the fiscal year end.
Notwithstanding the fragile market sentiments and heightened uncertainty, the ECB raised rates by 50, sticking to its commitment given in the last meeting though it refrained from giving any future guidance, Pal said. This was slightly surprising for the markets as they had started building a higher probability of a 25 bps hike by ECB.
The US Fed meeting next week is very crucial given the market scenario. The US bond markets are expecting an imminent recession with the US yield curve bull steepening as the 2yr yield has fallen by 100 bps over the last one week. The economic data continues to hold up along with inflation, both in US and Europe, he said. Indian bond yields were relatively stable though the curve steepened with the shorter end yields falling more than the longer-term yields.
