Mumbai: Rising inflation is seeing investors ducking from the storm in equities market to safe haven fixed-income investments and they prefer longer-dated perpetual bonds sold by state-owned banks with higher yield than similar maturity government securities and popular mutual funds.
While these bonds were untouchables for investors after the write-down of value in
and Lakshmi when they were rescued by the RBI, investors are preferring these bonds issued by state-owned banks amid improving financial health of select government-owned banks.
Perpetual bonds, known as Additional Tier 1 in market parlance, do not have fixed maturities but generally have a five-year call option, an exit route for investors. These are quasi-equity instruments, billed as riskier instruments that offer higher-than-average rate of returns.
Over the last three weeks, perpetual bonds issued by , and yielded 20-38 basis points lower compared to a 12-basis points fall in the five-year sovereign benchmark paper, data compiled by showed.”The falling yields are reflecting demand for those high yielding papers, once billed as untouchables,” said Ajay Manglunia, managing director and head of debt capital market at JM Financial. “Wealthy individuals are now seeking higher returns as the bull run in the stock market looks over for now.”
“These papers with five-year call option are considered as shorter duration bonds,” he said.
While at the current yield levels, those AT1 securities are yielding 53-90 basis points higher than comparative sovereign gauge, investors can earn as much as 126-basis points higher in terms of coupons payable annually or semi-annually. A basis point is 0.01 percentage point.
papers carrying a coupon of 7.55% yielded 7.7% on May 25 versus 8.08% on May 10. Similarly, Bank of Baroda (coupons 7.95-8%) and Canara Bank (coupon – 8.05%) yielded 7.95% and 8.07% compared with 8.20% and 8.27% earlier during the period.