Bond Yields Rise To Above 7%; Bond Funds Lose Around 3% In A Week

Bond yields are rising, and fast! You can’t see that in the 10 year bond (which is still at 6.86%) but the rest of the bond market, specifically the longer term bonds, have run away somewhat.
We saw recently that core inflation was rising. And before that, the RBI refused to cut rates quoting core inflation.
This has caused some sort of a run-off in bonds – yields are up, and prices are down. Bond funds have suffered as a result.

Bond funds have now lost around 3% in a week now, and it’s been looking rough. The only silver lining is that Foreign Investors are finding Indian debt exciting enough to buy – they have been buying bonds for the last week or so.
To your portfolio, a rising yield curve means you shouldn’t really be in bond funds that are heavy on the longer-term, because you’ll lose money, or at least have sub-optimal returns. Let us however hope that much of the damage has been done, and that we see some stability from here. Like someone we know said, aaj-kal equity se nahin, debt se dar lagta hai. (Nowadays it’s not the risk in equities but the risk in debt that’s scary)