Govt is currently the best bank to park your money, even in short term

Been buying some of the 4.56% Government bond (Nov 2023 maturity) for as much as 6.4% yield.

That's higher than a fixed deposit from nearly all banks we've checked.The government is currently the best bank for keeping your money, even short term.— Deepak Shenoy (@deepakshenoy) June 14, 2022

Bond yields have been rising across the globe and are currently at the highest levels in three years in India amid higher inflation and plans for policy normalisation by the Reserve Bank of India (RBI).

In the last one year, the yield on benchmark 10-year government bonds rose 149 basis points to 7.50 percent. While long-term yields have soared over 100 bps since the beginning of this year, short-term yields have risen by over 150 bps, Indian Express reported.

The current rise in the bond yields indicates that the markets have factored in worst scenarios of rate movements. At present, the repo rate set by the RBI is 4.90 percent and the rising bond yields imply incremental rate hikes of over 100 bps have been factored. Higher yields also indicate rising interest rates and cost of funds in the financial system.

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Higher inflation and rate hike expectations can further trigger investors from taking out capital from bank fixed deposits to invest in RBI sovereign guaranteed bonds, analysts said.

Depending on the government’s borrowing programme as well as global factors such as oil prices, bond yields may rise by another 25-50 basis points. Investors can, therefore, buy short-term investments for 1-2 years, said debt fund managers.

At present, a 3-year AAA-rated paper is giving a yield of around 7.25 percent. “Even if the yields were to rise by 50 bps over the next one year, if an investor remains invested for two years, he can make an annual return of 7 percent, which is good,” Indian Express quoted the CIO of a leading mutual fund as saying.