Indian federal bond yields dived to three-year lows on Wednesday after China's rate cuts spurred expectations the central bank would soon follow suit, encouraged by forecasts of a further dip in inflation.G-Sec yields had gone up on Monday and Tuesday - I have bought a gilt fund (Prudential ICICI Gilt fund, Investment Plan) which has gone up nearly 3% in the last week alone. It was up 0.7% today.
I wonder if I can buy G-Sec's directly - I saw a paper ad today by ICICI about how you can buy GOI bonds, but these are not tradeable and you won't benefit by falling yields. Typically a 1% drop in interest rates increases prices by 1-2% (dropping yields by that much) But if you can't sell your bonds (i.e. if your bonds are "not tradeable in secondary market") then you don't get any advantage.
The ICICI web site says GOI 2003, and I assume that's a WTF.
I'm not quite sure but right now I think corporate bonds will be a good buy if the secondary market has trades. I don't know why we don't promote that market - bonds are a fantastic set for trading, and today bond trades can dramatically change the marketplace especially if we allow derivatives on them (bond futures, interest rate futures and options etc.)
The establishment is not in favour, obviously, because this is their turf. Neither is the government - why else would these bonds be non-tradeable, and non transferable? But these are lame excuses. Still, I don't know how to answer the very basic question: if less than 3% of Indian savings are in stocks, why will anyone bother with bonds?
We can't force people to invest; we can only make it attractive. Today there is so much "value", and we have no long term capital gains taxes, we have much lower transaction costs than, say, 1998, and yet, very little new money is coming in. (Although, says SEBI chief Bhave, we've seen retail pouring in over 5000 cr. in the last few months. Wow)
Bond funds then, will have to do. Most of them are not honest. The Gilt funds invest in fixed deposits, the bond funds do shady deals and mask them with illegible names and all sorts of weird things are happening out there - please keep yourself informed of fund portfolios before you invest.
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>id heard pnb gilts did allow indls to bye gilts
bt that is a long time ago
11.26.08 at 11:30 PM
>Deepak has a good point about Debt Funds.
I have been searching for good Debt Funds whose portfolio does not contain Chemical Names (some securitised debt names alphabet soup).
Only few of the funds have Government Securities or Bank Deposits or AAA Corporate debt paper.
Finally I settled for short term Funds whose portfolio is only in Bank Deposits. HSBC and Birla.
Then I found a really good fund. Totally clear of India. DSPBR Gold fund is now very cheap as it invests in world Gold Mines equity. It is almost in multiyear lows and with gold prices expected to go up and oil prices going down (used extensively by Gold Mining Companies) this will shoot up like hell.
11.27.08 at 12:59 PM
>There are many bonds ( for example NABARD Bhavishya Nirman bonds ) that are traded on BSE, but depends on your broker whether he allows you to trade in them.
My online broker does not allow trading in bonds ( not even in preference shares! )
As px said PNB Gilts does allow individuals to trade in Bonds. See http://www.pnbgilts.com/howto.asp
But PNB Gilts don’t provide online trading, and you will have to approach them for every trade you want to execute.
11.28.08 at 3:53 AM
>Bond market development is the holy grail for development of capital markets. If I remember right, Rangarajan was on a committee to develop the markets. From a issuance perspective, the sense is that given the distribution costs (4-5%) of issue size, banks will not exactly be willing to take bond issues public.
For a wholesale debt syndication the comparable costs are minuscule.
I have never been able to figure whether a corporate bond market is a good thing or a bad thing. Let’s put it this way, we wont trust rating agencies, there are very few credible managements which espouse corporate governance, which promoters will you back when there is no information available?
11.28.08 at 6:51 AM
>Wally: I didn’t know it would cost 4-5% for a debt issue! wow…that’s steep.
Corp bond market exists – and corporats are issueing bonds. And if you own debt mutual funds, you are buying corp debt in all likelihood! Plus I think debt is safer than equity – after all a company HAS to pay back debt, unless it declares bankruptcy (in which case debt gets its share before shareholders) So if we’re willing to buy equity we should be ok with debt too…
11.28.08 at 7:04 AM
>hehe we all hope debt is safer and it theoretically is. but for that you require a formal bankruptcy system, where the company can be turned around. i havent looked at all cases, but from what i gather, typically there is no repayment of debt liabilities, banks mostly shore up existing loans with a top up, hoping for a payment in the bull run (or industry cycle). You cant really go after companies in India. We have made progress, but still a lot more needs to be done.
Thats the reason the FMP market, started with a bang and disappeared within 6 months, lock stock & barrel. You cannot cover for default. Insurance maybe an answer, but then.
I agree, equity/debt is just perspective but that interchangeability has not yet come through. The crisis has put us back a few more notches.
11.29.08 at 7:12 AM