The 10-year government securities yield climbed from 6.68% on 27 February 2026 — a day before the US-Iran conflict broke out — to 7.1% by 2 April, before easing slightly to 6.98% as of 13 April. According to reports from Mint, this spike has pushed long-duration debt mutual funds into negative territory, with the category down an average 1.11% since the war began. Long-duration funds, classified by the Securities and Exchange Board of India (Sebi) as those with a Macaulay duration of more than seven years, are among the most interest rate-sensitive debt fund categories.
The backdrop was already fragile before the conflict, as reported by Mint. At the start of 2026, markets were pricing in two rate cuts by the US Federal Reserve during the year. By mid-March, that view had fully reversed, with expectations shifting to a prolonged pause — and even to the possibility of a rate hike. This recalibration unsettled bond markets globally, including India, and when geopolitical escalation followed in late February, crude oil prices surged, stoking fears of higher energy-driven inflation and potentially delaying any rate relief.
Despite the challenges, some fund managers see opportunity in the sharp rise in yields. According to Mint, Akhil Mittal, senior fund manager — fixed income, at Tata AMC, stated that "With 30/40-year yields around 250 basis points above the repo rate, the long end of the curve offers an opportunity. The yield curve is very steep at this point." However, timing remains uncertain, as Mittal noted that "As long as geopolitical tensions persist, there may not be an immediate trigger for yields to soften."
Joydeep Sen, corporate trainer (financial markets) and author, struck a note of caution regarding tactical allocation, as reported by Mint. "Though most negatives appear to be priced in, a tactical allocation is tricky now. The RBI's rate cut cycle is over. The next rate change, whenever it comes, is likely to be a hike — though we expect a long pause in policy rates." Sen suggested that "a good entry point — say around 7.25% on the 10-year G-sec yield — could be a tactical opportunity." For new investors, a staggered approach may be prudent given the funds' sensitivity to interest rate movements.
