In the last few years, Indian investors have increased interest in American bonds. Currently, there are 5 such schemes of mutual funds in the Indian market, which invest in American bonds. However, these schemes are not taking new investment from investors. The reason for this is the limit of RBI and SEBI for investment abroad. The sudden increase in the yield of bonds in the US has made these schemes of mutual funds into the limelight. After Moody’s reduced the US credit rating last week, there has been a sharp jump in the bond yield in the US.
30 -year bond yield crosses 5 percent
30 years in America on 21 May Bonds of Yields Reached 5.089 percent. This is the highest since October 2023. The 10 -year bond yield increased to 4.59 percent. Increasing bond yield benefits new investors, while old investors lose. It is important to keep in mind that the price of bonds and its yield has an opposite relationship. This means that when the price of bonds increases, its yield decreases. When the price of bonds decreases, its yield increases.
Moody’s reduces American rating on 16 May
Credit rating agency Moody’s reduced the US rating AAA to AA1 on 16 May. The reason for this was stated to be the increasing burden of debt on the US government. Other rating agencies have also reduced the top rating of American. FITCH did this in 2023, while Standard and Puers did this in 2011. Experts say the decrease of US credit rating can be seen as a symbol. This will not have a practically much impact.
Mutual funds ups and downs on NAVs
Experts say that the returns of Indian mutual funds, which invest in American bonds, may show ups on a mark-to-market basis. Mayank Mishra, Vice President in INDMoney, said that the reduction of America’s ratings will lead to a short -term fluctuations in the prices of bonds. This will affect the NAVs of Schemes of Indian Mutual Funds investing in US bonds. However, in the medium to long period, these schemes appear in a position to give stable returns.
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Benefits of mutual funds investing in American bonds
Kaustubh Gupta of Aditya Birla Sunlife AMC said, “American bonds not only give diversifications in the event of global shock but also help to protect investors from drowning in the event of a sharp decline in domestic stock markets. They also save investors’ impacts against dollars.” These schemes are especially beneficial for investors who have the responsibility of repaying liabilities in dollars. For example, Indian students studying abroad and help in a way for Indians going abroad help in hedging.