The Debt market has witnessed a rising interest rate scenario since past one and a half year. This is largely attributed to rising inflation and tight liquidity in the banking system. The RBI has been raising key policy rates since April 2010; benchmark repo rate has been increased by 375 bps since April 2010 in an effort to control inflationary pressures.

It is possible that RBI is near to the end of its rate tightening cycle as inflationary pressures begin to ease in the next fiscal and growth worries also take precedence. Current interest rate environment has led to high yields of debt instruments in both short as well as long term. Therefore investments at current high levels of interest rates are likely to fetch attractive returns.

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