Even as equity markets continue to be in an abyss, it's a never ending bull-run on the bond markets. With successive interest rate cuts in a short period, bond funds have posted gala returns since the beginning of the current calendar. The gains were sharper in April, with buying in the new fiscal coupled with hopes of yet another rate cut, bidding up bond prices. Thus, funds with an ideal combination of the two segments have emerged on top.
Most corporate bonds have a maturity of five years or less.
While these bonds have gained, G-Secs in the same maturity spectrum have remained flat. The month also saw a convergence of returns between bond funds and long-term government security funds, though traditionally, the latter has lead the former by a wide margin in times of a rally. Going forward, fund managers see a further compression in spreads between corporate paper and G-Secs. For one, unlike the fag-end of last year, when there was a deluge of corporate paper in the market, fresh issues are not coming to the market. The supply of issues could only reduce, with banks allowed to lend at rates lower than the prime lending rate to companies.