Webinar on Challenges and Opportunities for Bond Investors in 2021 is scheduled on Saturday 30th January 2021 at 11am. Our panelists include Sriram Mahadevan from Azim Premji Foundation who will talk on the investing side while Rajalakshmi Sriram from Cholamandalam Finance will talk from a bond issuer perspective. I will be moderating the webinar apart from a presentation and talk on the topic.
Click here to register for the webinar.
Budget for fy 2022 can change the course of bond yields
The union budget for fiscal 2021-22 will be presented to the parliament on the 1st of February 2021. The government will show a fiscal deficit of around 7% of GDP for the last fiscal year, which is double of what was budgeted. It is going to be a challenge for the government to lower deficit or spending for this year, as growth momentum is key for the covid hit economy. High fiscal deficit is inflationary in nature as it promotes consumption without any adequate increase in supply.
An inflationary budget along with very high capital flows due to US Fed printing money and US government increasing its debt substantially will raise inflation expectations in the economy and this can cause bond yields to rise sharply. Bond yields have been coming down in the last couple of years on RBI rate cuts.
Rising yields, so what are the options for Bond investors
Bond investors are hurt when yields rise as it causes fall in prices of bonds. In this scenario, where do bond investors find opportunities? If the economy shows signs of recovery, there will be more corporate investments and this will lead to more issuers accessing the bond market. Investors will have a wide choice of issues and structures that can give them good returns. The bond market too will expand and provide more liquidity for investors. On the whole, a lot of positives can emerge despite rising bond yields.
