In recent months, fixed income markets have been navigating a complex interplay of global and domestic forces, forcing fund managers to reassess strategy and positioning. According to Suyash Choudhary, CIO – Fixed Income at Bandhan AMC, the evolving macro landscape now warrants a more defensive stance, particularly on duration.
The ‘Impossible Trinity’ at Play
Choudhary explains that the current environment can be best understood through the lens of the impossible trinity—the tension between exchange rates, capital flows, and monetary policy. Over the past year, this dynamic has been clearly visible in India, where external account pressures have constrained the RBI’s ability to maintain a ‘lower for longer’ rate environment.
As a result, he notes that monetary easing has not translated effectively into lower market rates, prompting a more active approach to duration management.
Tactical Shifts in Duration Strategy
Reflecting on recent positioning, Choudhary highlights that Bandhan AMC had initially reduced duration exposure when bond markets were pricing in prolonged low interest rates. However, as the West Asia conflict led to aggressive rate hike expectations, the fund house tactically added duration risk.
“We preferred the 14- and 40-year segment on the sovereign curve, while staying at the shorter end of the corporate bond curve,” Choudhary notes, pointing to opportunities arising from curve steepness and evolving credit dynamics.
New Risks: War, Commodities, and Global Growth
Choudhary identifies two key developments reshaping the macro outlook.
First, the prolonged disruption from the West Asia war is creating sustained supply shocks, particularly in commodities. He cautions that with inventories depleting and logistical bottlenecks persisting, energy prices could find a higher floor if the conflict continues, thereby intensifying inflationary pressures.
Second, Choudhary points out that the US economy has remained resilient, even as global capital allocation themes—especially those linked to AI—continue to gain momentum. This combination, he says, is limiting the ability of growth concerns to offset tightening financial conditions.
Implications for Interest Rates
According to Choudhary, these developments are widening the gap between RBI policy rates and market yields. “If this dynamic persists, the path of least resistance could be policy tightening rather than market yields adjusting downward,” he explains.
He expects the RBI to continue following a growth-inflation framework, with CPI inflation likely to remain in the 5–6% range for the current fiscal year. “This could translate into cumulative rate hikes of 50–75 basis points over the rest of the year,” Choudhary adds.
At the same time, he emphasizes that overly aggressive market pricing of rate hikes could create tactical opportunities to add duration.
Portfolio Positioning: Back to Underweight Duration
Given the evolving macro backdrop, Choudhary says Bandhan AMC has once again shifted to an underweight stance on duration across several of its portfolios. This has been implemented primarily by reducing exposure to long-duration government securities, particularly in the 14- and 40-year segments.
He adds that recent stability in yields has made this transition more manageable, even as the underlying decision remains driven by macro considerations.
What Could Change the Narrative?
Looking ahead, Choudhary believes that easing external pressures could alter the current defensive stance. “A resolution to geopolitical conflicts or stronger capital inflows could help,” he notes. However, he cautions that a sustainable shift may also require moderation in global investment themes like AI or a return of meaningful US rate cut expectations—both of which remain absent for now.
Bottom Line
Summing up the outlook, Choudhary reiterates that the bond market is at a critical juncture shaped by global shocks, resilient growth, and structural capital flows. In such an environment, he emphasizes that active duration management, flexibility in positioning, and close tracking of macro signals will be key to navigating volatility and preserving returns.
