One Up On Bond Street ; Rising Interest Rates Have Made Debt More Attractive As an Investment Option. But Where Are the Best Opportunities Available Now?

Business Today › September 09, 2008

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Summary

It's no surprise that investors often turn to the bond market when interest rates are high. But debt funds (that invest in gilts) are not a good idea just yet there are other attractive options. Interest rates are still volatile, and most bond market experts feel that rates could stabilise around September-October. It is always better to tap debt funds after rates have stabilised or are heading downwards.

Even though the 10-year benchmark G-sec yield is hovering around 8.89 per cent, down from 9.05 per cent on July 10, 2008, experts feel that the rate is not sustainable and will move up, given that Treasury bills (the rate of return for one year) are giving much higher yields at 9.43 per cent. Says Ashish Nigam, Head, Fixed Income, Religare Aegon Asset Management: With inflation ruling high (12.44 per cent for the week ended August 2, 2008), the 10-year coupon rate is unsustainable and is bound to go up after another repo rate hike. If you are looking for opportunities in the debt market, then have a game plan ready for the next twothree months. Says Mallinath Madineni, CIO, Arthamoney, a personal finance company targeting retail investors: It is a good time to start looking at debt investments, but don't rush to invest in debt.