Gilt yields fall off the floor, prices near all time highs

The yield of the 10 year G-Sec, a benchmark in a way, is at 5.27% as per Reuters.

Indian federal bond yields tumbled to their lowest since May 2004 on Tuesday as expectations grew the central bank would cut rates, while speculation of a reduction in fuel prices lifted sentiment for debt.

The benchmark 10-year bond yield closed at 5.27 percent after touching an intraday low of 5.25 percent, its lowest since May 2004. It had closed at 5.55 percent on Monday.

Gilt funds should go strongly up. I've already got a 10% return on my (phased) investment into the ICICI Prudential Gilt Plan, in 1.5 months. I'm holding for another 20-30% return within a year.

Note: I have been told by two people now that ICICI's mutual fund arm is pushing it's "income plan" whenever they want to invest in the Gilt fund. The income plan has much higher costs (the fees are 2x the Gilt plan, nearly) and invests a good chunk in corporate bonds too. Now they say corp bond yields will come down as well, because the spread is too high. If you look at the US - a much more developed market - corp bond yields are still very high and gilt yields are at all time lows. The spread need not ever come down, and in India we will see our share of corp defaults.

Plus the income fund has a 2% exit load (versus only 0.75% for the gilt fund).

So I would never go with the income plan - I'd stick with the basis. Gilt is gilt, and only gilt.

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This entry was posted on Tuesday, December 30th, 2008 at 2:24 PM and is filed under Gilts. You can subscribe to any comments to this entry via RSS 2.0. You can leave a response, or trackback from your own site.