Published on August 26, 2020
1. 3 4 4 5 5 6 6 7 1 M 3 M 6 M 1 Yr 3 Yrs 5 Yrs 10 Yrs Yield Curve – Gsec (%) 24-Aug-20 17-Aug-20 Steeper the Climb Sweeter the view 3 4 5 6 7 1 M 3 M 6 M 1 Yr 3 Yrs 5 Yrs 10 Yrs Yield Curve – Corporate Bond (%) 24-Aug-20 17-Aug-20 Yield Curve Steepening in bond markets Term Premiums above historical highs Just like one experiences “a Sweeter View after a Steeper Climb” We believe that the current steepness in bond markets should not make investors wary instead it is an opportune time to add duration as the longer end of the yield curve becomes attractive! Source: CRISIL Research, Data as on August 24, 2020,Past performance may or may not sustained in future; G-Sec – Government Securities Source: CRISIL Research, Data as on August 24, 2020,Past performance may or may not sustained in future
2. Steeper the Climb Sweeter the view Reasons for the spike The Way Forward 1.RBI’s Auction of Government Securities (G-Secs) showed weak demand 2. Also, the cut offs for the aforementioned G-Secs happened at a higher level 3. Minutes of the Monetary Policy Committee (MPC) meeting highlighted members concern around higher inflation numbers 4. There was no indication from RBI on absorption of excess G-Sec supply Term Premiums As highlighted previously, Term premiums remain elevated making the longer end of the curve attractive Economic Growth RBI continued with its negative guidance towards growth for this financial year Inflation We expect inflation prints to moderate as supply chain disruption impact starts to recede RBI Monetary Policy Stance Given the background of negative growth and improvement in inflation numbers, RBI may continue to remain accommodative RBI’s measures on yield curve control We expect RBI to absorb the extra supply of G-Secs from the bond market. For instance: Open Market Operations (OMO) announced on 25th August, 2020 of INR 20,000crores (Source: RBI) Our View We continue to remain positive on duration, and continue to recommend our investors to add duration as the valuations remain attractive for the longer end of the yield curve.
3. Steeper the Climb Sweeter the view Our Scheme Recommendations Scheme Name Gsec^ AA (% Holding) YTM Modified Duration Average Maturity Macaulay Duration ICICI Prudential Medium Term Bond Fund# 20.69% 55.4% 7.95% 3.53 Yrs 4.95 Yrs 3.74 Yrs ICICI Prudential All Seasons Bond Fund# 56.06% 30.7% 7.28% 5.38 Yrs 8.89 Yrs 5.63 Yrs Data as on July 31, 2020 #The scheme also has exposure to AAA equivalent securities and TREPs & Net Current Assets ^Includes exposure to T-Bills Disclaimer Mutual Fund investments are subject to market risks, read all scheme related documents carefully. In preparation of the material contained in this document, ICICI Prudential Asset Management Company Limited (the AMC) has used information that is publicly available, including information developed in-house. Some of the material used in the document may have been obtained from members/persons other than the AMC and/or its affiliates and which may have been made available to the AMC and/or to its affiliates. Information gathered and material used in this document is believed to be from reliable sources. The AMC, however, does not warrant the accuracy, reasonableness and / or completeness of any information. We have included statements / opinions / recommendations in this document, which contain words, or phrases such as “will”, “expect”, “should”, “believe” and similar expressions or variations of such expressions that are “forward looking statements”. Actual results may differ materially from those suggested by the forward looking statements due to risk or uncertainties associated with our expectations with respect to, but not limited to, exposure to market risks, general economic and political conditions in India and other countries globally, which have an impact on our services and / or investments, the monetary and interest policies of India, inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, equity prices or other rates or prices etc. The AMC (including its affiliates), the Mutual Fund, the trust and any of its officers, directors, personnel and employees, shall not be liable for any loss, damage of any nature, including but not limited to direct, indirect, punitive, special, exemplary, consequential, as also any loss of profit in any way arising from the use of this material in any manner. The recipient alone shall be fully responsible/are liable for any decision taken on this material. All figures and other data given in this document are dated and the same may or may not be relevant in future. The information contained herein should not be construed as a forecast or promise nor should it be considered as an investment advice. Investors are advised to consult their own legal, tax and financial advisors to determine possible tax, legal and other financial implication or consequence of subscribing to the units of ICICI Prudential Mutual Fund. The debt securities mentioned in this communication do not constitute any recommendation of the same and ICICI Prudential Mutual Fund may or may not have any future position in these debt securities. Past performance may or may not be sustained in the future. The portfolio of the scheme is subject to changes within the provisions of the Scheme Information document of the scheme. Please refer to the SID for investment pattern, strategy and risk factors. The information contained herein is only for the purpose of information and not for distribution and do not constitute an offer to buy or sell or solicitation of any offer to buy or sell any securities or financial instruments in the United States of America ("US") and/or Canada or for the benefit of US persons (being persons falling within the definition of the term "US Person" under the US Securities Act, 1933, as amended) or persons residing in Canada. The Macaulay duration is the weighted average term to maturity of the cash flows from a bond. The weight of each cash flow is determined by dividing the present value of the cash flow by the price.