Rising Sovereign Bond Yields: How
Praveen Dubey (SEBI Registered RA)
SP RESEARCHVIA PVT. LTD. (INH000015808)
The Yield Spread Dynamics of Trust Assets
Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) have become popular in India for their high distribution yields. However, like bonds, their valuations are sensitive to interest rate adjustments.
How do rising interest rates affect REITs and InvITs?
When sovereign bond yields rise, the yield spread between risk-free debt and REITs/InvITs narrows. Investors demand a higher risk premium, leading to price corrections in REIT units to align their distribution yields with market rates.
Inflation Protection Hedge
Despite interest rate headwinds, REITs with rental contracts linked to inflation indices offer a defensive hedge, as rising rents can offset high borrowing costs over time.
Written by Praveen Dubey
Chief Research Analyst | SEBI Reg: INH000015808
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