Rate pause effect: Debt fund yields come off after year-long rally

Yield to maturity may remain range-bound

The yield to maturity (YTM) of short-to-medium duration debt mutual funds (MFs) have started to taper off, following the Reserve Bank of India’s (RBI’s) move to pause interest rate hikes. YTM — an indicator of future returns — was trending upwards, across categories, since the central bank kicked off its interest rate hike cycle in May 2022 to curb inflation.

According to fund managers, YTMs of most short-to-medium horizon schemes had started to come off their highs in March itself and went on to decline further in April. Meanwhile, the YTMs of longer horizon schemes had peaked last year and