Debt funds now look to accruals as interest rate cut cycle peaks

Fund managers see little room for further yield decline

With the interest rate cut cycle nearing its end, several debt fund managers are shifting their focus towards interest income rather than betting on duration in anticipation of capital gains.

 

Debt funds, especially those mandated to invest in longer-dated bonds, have delivered outsized returns in the past two to three years as rate cuts, favourable demand-supply dynamics, and the macroeconomic environment led to a sharp decline in yields across the curve.

 

A decline in yields is positive for bondholders, as it leads to capital gains. However, fund managers and experts say that the room for a further decline in yields