EVENING

A friend texted me last night. RBI meets the first week of June, the whole timeline says a cut is coming, and he wanted to know whether to move money into the debt side of his hybrid fund to catch the rally.

Reasonable question. Wrong starting point.

The first thing worth saying out loud: a repo cut does not reach your money directly. It reaches it through the bonds your fund holds, and how much it moves them depends almost entirely on one number on the factsheet that almost nobody opens. Duration.

Take the same 25 basis point cut and run it across the shelf. A liquid fund, duration near zero, gains about 0.03 pct. A corporate bond fund at duration 4 gains about 1 pct. A long gilt at duration 9 gains about 2.25 pct. Same rate move. Roughly 75 times the spread between the top and the bottom. The repo number was identical for all three. Duration did the rest.

Then the part most people miss. Your bonds are not priced off the repo rate, they are priced off the yield curve, and the curve already bought the expected cut weeks ago. If the MPC delivers exactly what everyone expects, prices barely move. Decision day only pays you for three things. The surprise versus what was priced, the stance, and the guidance on what comes next.

And inside a hybrid, the debt sleeve is the shock absorber, not the engine. A 25 pct debt sleeve at duration 3 lifts the whole NAV by about 0.19 pct on that move. Less than one average day in the equity side. If you moved in for the rate rally, you bought the wrong sleeve for the job.

So the honest version. The repo number will lead every headline next week. The number that actually moves your debt sleeve sits in 8 point grey type on page 4. Read that one first.

How a rate move flows through a debt sleeve: