The US-Iran war has triggered heightened volatility in global equity markets, while gold prices have also seen sharp swings, driven by fluctuations in crude oil prices and the US dollar.
This is a time when investors are worried about their investments, as most asset classes have delivered negative returns in recent times. The equity benchmark Nifty 50 has crashed 10%, while domestic spot gold prices have dropped 8% since the began on February 28.
Volatility in the stock market and seems to have shifted focus towards government bonds, which are relatively more stable than these two asset classes.
Bonds in focus
At the current juncture, long-term government bonds are becoming attractive because yields are high. India’s 10-year government bond yields are around 7%–7.2%. This is one of the best levels seen in recent times. When yields are high, bond prices are low, so investors enter at a favourable level.
However, a key variable to consider is monetary policy, as the risk of inflation has risen due to elevated crude oil prices driven by the US-Iran war.
“The FY27 outlook for bonds will be impacted by the aftermath of the US-Iran war,” said Vishal Goenka, the co-founder of Indiabonds.com.
Goenka underscored that the current trajectory gives a high probability of 50-75bps rate hikes this year, and last year the cuts were front-loaded. However, there was no transmission in the long-term interest rates, which have remained quite high.
According to Goenka, the ideal investment would be investing in 1-2-year short-end corporate bonds, which are less sensitive to underlying rates.
On the other hand, some experts believe that this is the right time to invest in long-term government bonds.
Harshal Dasani, Business Head, INVasset PMS, highlighted that with inflation cooling and policy rates appearing closer to the peak, investors now have an opportunity to lock in relatively high sovereign yields for an extended period.
Dasani highlighted that India’s fiscal consolidation path remains intact, which creates a favourable risk-reward setup for long-term investors.
“Sovereign credit risk remains minimal, real yields are still appealing, and any moderation in growth or further disinflation could strengthen the case for duration. This does not mean investors should go all in at one level, but staggered accumulation in long-term government bonds now looks far more compelling than it did a few quarters ago,” said Dasani.
Darshan Rathod, COO at Multyfi, highlighted that higher yields on long-term bonds, anticipation of RBI rate cuts, and low volatility are the main factors that have made long-term government bonds more attractive.
“Once inflation comes under control and global pressure reduces, the RBI may start cutting rates. When that happens, bond yields fall, and prices rise. This gives investors not just fixed income, but also capital gains,” said Rathod.
“In a volatile market where equities are correcting 12%–17%, bonds provide stability and predictable returns. However, this is not a ‘go all in’ situation. Risks still exist, especially if crude oil remains high. Simple view, this is a good time to start increasing exposure slowly, with a 3–5 year mindset, and benefit from both income and future price upside,” Rathod said
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.