India's Bajaj Finserv AM finds best risk-reward in 30-year bonds, fund manager says

India's ultra-long 30-year government bond currently offers the most attractive risk-reward profile, having absorbed much of the recent market pressure, a senior fund manager for fixed income at Bajaj Finserv Asset Management said on Tuesday.

"We have been maintaining higher durations expecting easy liquidity condition post rate cut. Now we will need to see growth data (high frequency data before that) for the quarter and currency stability too before changing the view," Siddharth Chaudhary told Reuters' Trading India forum.

The yield on the 30-year 7.09% 2054 bond (IN070954G=CC) stood at 6.98%, down from a late-June high of 7.07%.

Ultra-long bonds, including 30-year and longer maturities, surrendered much of their earlier gains following the Reserve Bank of India's shift in monetary policy stance in early June, the fund manager added.

Chaudhary, whose fund house managed debt assets worth around 98 billion rupees ($1.14 billion) as of the end of June, expects the 10-year benchmark bond yield (IN063335G=CC) to ease to the 6.10%–6.20% range, down from the current 6.32%, assuming market expectations of a rate cut persist.

"The RBI could sound dovish but we do not see rate cut in August policy. We need to see how rate transmission post previous rate cuts and of course this quarter's growth data. So it will be an opportunity to get the signaling right post abrupt change in stance last time."

However, with inflation trending below projections and growth remaining subdued, the chances of a 25 basis point rate cut later this year have improved, Chaudhary said.

Retail inflation slowed to a more than six-year low of 2.10% in June, lower from 2.82% in May. The drop in June and expectations of inflation dropping to a record low in July is prompting calls for at least one more interest rate cut this year.

($1 = 85.7870 Indian rupees)