Bond Markets

The headline in today’s Business Standard is regarding the proposed issue of “console” bonds in order to fund the modernization of Delhi and Mumbai Airports. These bonds will pay an interest life-long, without any principal payment. In effect, it is just like a bond being renewed every time it expires.

As an aside, I assume that in this case the coupon the bond will pay would be floating, else given the volatility of the markets in the long term, it’s unlikely anyone would want to invest in them.

Coming back, the article goes on to say that the coupon on these bonds would be around 150-200 basis points higher than the coupon on long-term infrastructure bonds.

Wondering if it would have been different if we had a market for corporate bonds in India. If regulation allows it and some exchange starts offering trading on these instruments, a large number of Financial Institutions (Mutual Funds, Hedge Funds, Insurance and Pension Funds) would start investing in these bonds instead of in equities, given the already over-heated equities market.

And if we did start one such market, liquidity in the bond markets would increase and I am sure the “long-term premium” which will be paid on the bonds being issued by the airports would have been much lower.

One Response to Bond Markets

  1. […] I remember that Madman Aadisht had taken a break from blogging during placements at IIMB, and because he wanted to keep the blog going, he offered to attend some pre-placement talks on my behalf (IIMB had a complex system of compulsory attendance for pre-placement talks so that companies got a favourable impression of the batch). So I ended up writing some blog posts on his blog (after a revamp, they all appear as if he’s written). I can identify that I wrote this one and possibly this one (Madman was kind of my guru on all things online, which includes blogging and Orkut – he sent me an invite to join Orkut long before it was cool. So I kinda ended up writing like him so it’s hard to distinguish the posts now) and this one for sure and perhaps this one . […]

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