KOCHI: With inflation low, interest rates steady, and yield from bonds comfortably elevated, retail investors may be staring at one of the better fixed income opportunities in recent years.
This isn’t about chasing market timing. It’s about recognising that current conditions offer the rare chance to lock into stable, inflation-beating income – while also keeping the door open for capital gains as the rate cycle turns.
Bond yields – particularly on 10-year government securities and high-grade corporates – are hovering around 6.5 to 7.2 per cent. With inflation just above 2 per cent, the real returns are unusually attractive.
In a world where bank fixed deposits are yielding similar nominal rates but offer less flexibility and lower post-tax returns, bonds suddenly look far more compelling.
But that’s only half the story.
As the Reserve Bank of India (RBI) signals comfort with the inflation trajectory, markets are increasingly pricing in a rate cut cycle sometime in 2026. If and when that happens, bond prices are likely to rise, delivering capital appreciation to those who locked in now.
This potential for price upside adds a sweetener to the steady carry investors can already earn.
What also works in favour of bonds right now is the government’s borrowing plan. The shift towards more issuance in the 5-, 10-, and 15-year segments – and a pullback from ultra-long bonds – points to a conscious effort to keep the market stable and liquid.
For investors, it means easier access to bonds with meaningful yields and lower interest rate risk.
For those looking to diversify away from volatile equity markets, bonds are no longer the dull alternative. With yields likely to trend lower in the coming quarters, current offerings may not last. For once, fixed income may be offering a limited-time deal – steady cash flows today, and potential price gains tomorrow.
