Mumbai: State Bank of India‘s additional tier-1 bonds are likely changing hands for the first time in the secondary market at prices lower than those for other lenders, such as , Canara Bank and privately held HDFC Bank, bond dealers said.
securities yielded 8.11%, or nine basis points higher than those for banks, with existing investors incurring mark-to-market losses. Dealers attributed this to a higher supply of papers.
One basis point is 0.01%.
“With a larger outstanding stock of bonds, SBI perpetual papers for the first time yielded higher than select other banks,” said Ajay Manglunia, managing director and head of the investment grade group at
. “Some investors could be incurring mark-to-market losses with rising yields. They may have rushed to exit positions triggering higher yields – it’s nothing else.”
State Bank of India’s additional tier-1 bonds, also known as perpetual papers, serve as a barometer for this segment that has a history fraught with investor losses.
The country’s largest mass lender has an outstanding of around ₹40,882 crore of such bonds versus HDFC Bank’s ₹3,000 crore in the local market, show data compiled by JM Financial.
Bank of Baroda and have outstanding stocks of ₹12,355 crore and ₹12,436 crore each.
Perpetual bonds do not have fixed maturity but generally have a five-year call option, an exit route for investors provided the borrower exercises it.
HDFC Bank AT1 bonds traded at 8.02% in the secondary market, and Bank of Baroda and Canara Bank reported trades at 8.08% and 8.06%, respectively.
When bond yields rise prices fall.
All these papers were sold recently in the primary market.
SBI sold perpetual papers worth ₹6,872 crore offering 7.75% earlier in September. It garnered an encouraging response with short-term investors likely seeking trading gains. Since the beginning of September, the benchmark bond yield surged as much as 42 basis points raising overall funding costs amid an ongoing rate hike cycle.
“The market is stuffed with SBI and other public sector bank credits. So, it is now showing a preference for private sector credit in the secondary market route,” said a banker.
The local market for AT1 bonds had dried up as select banks either decided not to exercise call options or wrote off the debt following the in-built features of the instrument.
Of late, HDFC Bank kicked off AT1 sales in the offshore market. Back home, SBI took the lead in reviving the same as investors always repose faith in the sovereign-backed banking bellwether. Wealthy individuals, retirement funds, insurers and even mutual funds have of late started investing in perpetual bonds.