The 10-year government securities (G-Sec) yield, which sets the tone of the fixed-income market, rose steeply over the past month. It ended at 9.02% on 19th November. The government likes to believe that the spike is temporary. RBI reassured investors about providing the necessary rupee liquidity to the market by announcing a bond sale of Rs80 billion ($1.26 billion) as well as open market operations (OMOs). The rupee fell 3.25% against the US$ between 6th November and 12th November; it was the biggest loser in Asia as dealers feared increased dollar demand from oil companies. It hit close to Rs64/US$ and rallied back to Rs62.25 by 19th November.
Although corporate FDs offer interest rates that are higher than bank FD rates, they are unsecured—a feature that the Companies Bill 2013 has half-heatedly tried to change. Chasing high returns of corporate FDs can expose you to the risk of losing your principal if you don’t check the credibility and rating of the company. Some FDs with highest rating (CRISIL FAAA) on offer currently are from companies like HDFC, Mahindra Finance, National Housing Bank and LIC Housing Finance. The highest rate (among the companies listed above) is on Mahindra Finance’s non-cumulative three-year FD (10%) and cumulative three-year FD (10.25%).
A fortnight ago, the maximum yield for AAA bond was 9.84%. With rising bond yields, you can expect to get an yield of over 10.30% for AAA rated bonds of maturity in the next six months and almost 11.50% for AA rated bonds.