DailyBubble News
DailyBubble News

Wealth edition 13-May-2024 to may-19-2024

The highly anticipated rate cut bonanza has been postponed. Market watchers had expected significant rate cuts at the beginning of this year, but now it seems that any easing will be delayed and less drastic. This has implications for investments in the bond markets.

The US Federal Reserve has dampened investor hopes for rate cuts in its recent monetary policy review. Fed Chairman Jerome Powell indicated that interest rates will need to stay high for a longer period due to sticky inflation and strong US employment numbers. The Fed typically cuts rates only when the economy is weakening, and it wants to avoid cutting rates too soon. This has led to expectations of two rate cuts by the Fed in 2024, down from four previously, and a shallower easing cycle.

The delay in rate cuts by the Fed is likely to influence the RBI’s decision on its own policy rates. The RBI is closely monitoring global central bank actions, crude oil prices, and the progress of the monsoon. In its latest policy review, the RBI maintained a mildly hawkish tone and emphasized the challenge of achieving its inflation target. This suggests that rate cuts may be on hold for some time.

Despite the uncertainty surrounding rate cuts, many analysts and fund managers still believe that easing is on the horizon. However, there is a growing acknowledgment that the rate cut cycle may be shallower than initially expected. Experts suggest taking a cautious approach in the current environment.

Investors should consider funds with an average duration of 5-6 years with predominant sovereign holdings for a better risk-reward balance. Intermediate duration funds are also recommended, as they offer adequate duration risk while protecting investors from volatility. Dynamic bond funds, which have the flexibility to adjust their portfolios based on market conditions, are seen as a good option for navigating a volatile macro environment.

Overall, while the prospect of rate cuts may have dimmed, there are still opportunities for investors in the bond markets. It is important to stay informed and make strategic investment decisions based on the evolving market conditions.

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