Fund managers rebuild local-currency bond positions

Domestic fund managers are rebuilding positions in local-currency government bonds, attracted by yields that now sit comfortably above inflation for the first time in several years.

Positive real yields change the calculus for pension funds and insurers, which underwrite long-dated liabilities. When the return on cash and short paper exceeds the inflation rate, holding duration becomes a deliberate choice rather than a gamble.

Demand at the long end

Recent auctions have shown firmer demand for longer maturities, a shift from the crowd at the short end that defined the past two years. Managers describe the move as gradual, wary of being caught by a reversal in the disinflation trend.

Foreign participation remains limited, so the marginal buyer is domestic. That makes the market less sensitive to global risk appetite but more sensitive to the local inflation print.

For corporate issuers, the change is welcome. A deeper and more confident domestic bid lowers the premium they must pay to fund capital projects.