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By Anushka Trivedi and Dharamraj Dhutia<br> MUMBAI, Nov 7 (Reuters) - The fourth quarter of this fiscal seems best suited to buying government debt as headwinds from the rupee's slide, global monetary tightening and rising inflation will taper off, said Sandeep Yadav, head of fixed income at DSP Investment Managers.<br> Yadav expects the next three months, leading up to February, to be turbulent for bond markets, with the yield on the 10-year paper potentially testing 7.75%-levels over the period.<br> The benchmark bond is currently yielding 7.446%.<br> "I am negative on Indian bonds largely because currency depreciation remains a worry," said Yadav, who manages a fund with assets worth around 425 billion Indian rupees ($5.15 billion).<br> State debt issuances have been "anaemic" despite high demand.  "The fiscal impact and impact on bond yields of that has been huge," said Yadav.<br> Borrowing from Indian states has been sharply lower so far this financial year -- coming in at around 3.57 trillion rupees, only about 72% of planned issuances -- as they cut down on expenditure.<br> Yadav recommends investors wait and add longer-tenor securities to their portfolios in the next quarter.<br> "Around February, when the budget is announced, which would be the final budget before 2024 elections, borrowing could rise and markets may react negatively."<br> "The RBI may step in during this time with open market operations as liquidity would most probably be in deficit. Moreover, this could coincide with the J.P. Morgan bond index inclusion update."<br> A lot of negatives would've converged by then, with investors having digested the worst fears around inflation, higher rates and a weaker rupee, Yadav added.<br> He expects corporate debt supply to rise but said the spread with government bonds was unlikely to touch pre-COVID levels, adding that DSP's preference remains to invest in longer-dated sovereign bonds.<br> RUPEE A 'GENUINE CONCERN'<br> Yadav's main reason for his bearish view on bonds is the rupee's tumble -- around 10.5% so far this year, including hitting a record low of 83.29 per dollar last month.<br> "I believe the rupee is a genuine concern and would expect more rate hikes to protect it," he said, adding a 50-basis point hike next month is a possibility.  ($1 = 82.5000 Indian rupees) (Reporting by Anushka Trivedi in Mumbai; Editing by Savio D'Souza)<br> adverts.addToArray({"pos":"inread_player"})Advertisement  Also visit my webpage
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