Duration funds in a spot over rate pause, yields hardening in past 6 months

The assets of gilt medium & long-term funds have dipped 11 per cent to Rs 134.6 billion in the past year

Duration funds have had a rough run in the past few months. The pause in the rate-cut cycle has limited opportunities for these funds, which rely on duration play and primarily benefit in a declining interest rate environment. 

Over the past one year, the Reserve Bank of India (RBI) has turned hawkish due to the rise in global crude oil prices, possibility of fiscal slippage and rise in inflation. Yield on the 10-year government security is up 86 basis points (bps) to 7.28 per cent. In fact, g-sec yields are already discounting a 40-50 bps rate hike by RBI. Bond prices