Doubts regarding rate of change of bond prices

[pratik singhal]

Dear All,

Recently, while going through media reports about interest rate fall I came across an article in ET - http://m.economictimes.com/markets/bonds/mutual-fund-managers-cut-maturity-of-short-term-bonds-to-4-5-years/articleshow/19961122.cms

Here, the author is saying most MFs are reducing avg maturity of there fund knowing that interest rates will fall in future. As per normal relationship between duration, interest rate change and bond prices , higher the maturity/duration the higher the rise in bond prices in case of reducing interest rates. So, this move is counter intuitive to what we expect.

Is there some component of bond pricing that I am missing?

Regards

Pratik Singhal
7738158569

[Vikas Singh]

Hi Sir,

I just read the article, and I think it was in line to our understanding. The expectation in market is that the fall in interest rate would be steeper in the shorter duration and hence the yields in that maturity range would be comparatively higher. They are not expecting a parallel (downward) shift in the interest rate curve.

Regards,

Vikas

9819003283