INSUBCONTINENT EXCLUSIVE:
Anurag Mittal, head of fixed income at UTI Mutual Fund4 min read Last Updated : Aug 21 2024 | 2:11 PM IST
Global equity markets were
rattled recently by the possibility of a recession in the United States even as the Bank of Japan (BoJ) hiked rates to the highest level in
ANURAG MITTAL, head of fixed income at UTI Mutual Fund, tells Puneet Wadhwa in an email interview that apart from liquid funds, high quality
moderate duration products (one-four years) are better suited for investors that wish to invest for the long-term
Edited excerpts:How do you see bond yields play out in the next three - six months in case the 'higher for longer' narrative for central
may come under pressure in case monetary easing gets delayed
The balance of risks to growth has increased with global consumption expected to weaken on restrictive interest rates, fading fiscal
stimulus, and exhausted savings.
Given the slowing economic trajectory and comfortable inflation, we expect the US Federal Reserve to
greater confidence on stability of inflation or slowdown in growth
what extent are the financial markets pricing this in?
Markets have recently started to price in a higher probability of recession and
more aggressive rate cuts by the Fed driven by weak labour data
Swaps are pricing in more than 100bps rate cuts in calendar year 2024 (CY24) compared to just 50bps at the end of June
While wages are slowing down, the labour market is still relatively healthy and supportive of consumption.
Our base case remains a slowing
growth momentum rather than an outright recession
We are not seeing acute distress in financial conditions or labour markets generally associated with recessions
Central banks are expected to remain on a gradual easing path as growth and inflation moderates in an orderly transition.Assuming this
recession does happen, how do you think the global central banks will react to such a situation? What's the first line of defence?
Central
An economic recession sparked by a weak housing or labour market could lead to asymmetric and sharper interest rate cuts from global central
instability, however, may require targeted measures like forex (FX) / liquidity lines or asset purchase programs, apart from regulatory
measures to contain volatility.Is the Bank of Japan (BoJ) done with rate hikes for now?
Given the still sticky domestic inflation, we
expect BOJ to continue to gradually tighten monetary policy
already built in substantial rate hikes from the BOJ
A significant Yen appreciation from current levels may not be possible unless BOJ undertakes extremely aggressive rate hikes, which is not
interest rates?
Real interest rates are meaningfully high in India compared to the last three years, which present an attractive
opportunity for patient investors
We have already seen flows in excess of Rs 15,000 crore in gilt and long-duration funds since March 2023
one latch on to now?
Apart from liquid funds which serve immediate liquidity needs, high quality moderate duration products (one-four
years) are better suited for investors over long-term horizons
Interest rate cycles can be volatile and moderate duration products can provide reasonable accrual as well as opportunity to participate in
capital gains without taking very high duration risk.First Published: Aug 21 2024 | 2:11 PMIST
