Fuel prices are at record highs
Petrol prices have risen to record high levels of Rs 100 per litre, which directly affects your pockets. The reason for high petrol prices is the lack of funds for both the state and central government, as revenues have been hit hard by the covid pandemic disruption to the economy. Apart from pinching your pocket, cost of all other goods and services also rise due to rising transportation costs, which further hurts your finances. On the investment side, high petrol prices has an effect on your fixed income portfolio, as returns on your investment fall due to both higher inflation and falling bond prices.
Bond yields can rise in the next 2-3 months
High petrol prices add to inflation in the economy, as you will have noticed from the fact that you are paying more for all goods and services. This higher inflation is also at a time when government finances are extremely weak, resulting in rising debt levels of the government. As you know, when debt levels increase, the cost of borrowing also rise and when cost of borrowing for the government rise, bond yields also rise. Already cost of borrowing for state governments have risen sharply over the last few months. It is a matter of time before cost of borrowing for corporate bond issuers also rise.
Postponing bond investments can give higher returns
Instead of investing in bonds now, if you invest 2 or 3 months later, the interest rate you receive from your investments will be higher. Higher interest rates help you negate the effects of inflation on returns from bond investments. Hence, if you can wait, consider postponing bond investments until interest rates reflect the high petrol price you pay.
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