HNIs and Family Offices Buy Corporate Bonds at High Yields and Reap the Profits – Business Standard

While bond market liquidity has improved markedly, thanks to efforts by the government and the Reserve Bank of India (RBI), there is no indication that risk appetite has returned, especially for non-financial companies. banking.

The yields of some of the leading companies are still at very high levels and high net worth individuals and family offices, which raise these bonds at very attractive rates, are reaping the rewards. Most of these bonds mature in one or three years.

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The disruption in the public bond market due to pressures on repayments from credit risk funds has resulted in widening secondary spreads for issuers, said Nachiket Naik, head of corporate lending at Arka Fincap.

“With the lack of appetite for investing in the public markets, this generated a lot of interest from private investors in the family office, who bought these bonds at significantly higher yields,” Naik said. .

Experts claim that the interest of private investors stems from the fact that the Reserve Bank of India (RBI) and the government have demonstrated their ability to bring financial stability to the bond market and inject liquidity into NBFCs. Short term one to three year high yield bets are a good thing for these investors, even after a wave of defaults lately.

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A case in point is Dewan Housing, which has seen its bonds trade at yields of 477 percent, according to NSE data. The price of the bonds is now around Rs 20 for a face value of Rs 100. The bonds mature in less than a year. So if an investor buys these bonds, hoping that the bonds would be redeemed at face value, the returns would be in multiples of the investment.

ECL Finance bonds, introduced by the Edelweiss group, traded at a yield of 25%, while Shriram Transport bonds from December 2024 traded at 15.25%. Even IndusInd Bank sees its Tier 1 perpetual bonds trading at 13.8%.

“The risks of perpetual bonds are different from those of normal bonds. As the YES Bank episode showed, if the bank is in trouble, it can forgo full payment. IndusInd is not going to be stressed like YES Bank, but all the perpetual bonds of the banks have been hammered by investors after the YES Bank fiasco, ”said a bank analyst, from a domestic brokerage firm, requesting anonymity.

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To be sure, the spreads have narrowed considerably, with the Reserve Bank injecting Rs 9.6 trillion in liquidity through various measures.

RBI Governor Shaktikanta Das said during last week’s monetary policy review that actions by the central bank had reduced the spreads of three-year AAA-rated corporate bonds on securities. State (G-secs), going from 276 basis points. (bp) on March 26 at 50 bp at the end of July. Spreads on “AA +” rated bonds softened from 307 bps to 104 bps, while spreads on “AA” bonds narrowed from 344 bps to 142 bps over the same period. Even for the lowest investment-grade bonds (“BBB-”), spreads fell by 125 bps as of July 31.

However, these are mainly primary emissions. Bond brokers say secondary market trading activity has not picked up much and investors buy bonds with the knowledge that they may not be able to sell them profitably when needed. which can make room for private investors looking for returns.

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