Tax-free Bonds Getting Oversubscribed Quickly

The recent tax-free bond issues of NHPC, NTPC and NHB (National Housing Bank) have got tremendous response from all categories of investors. With attractive coupon rates for 10, 15 and 20 years, being offered on a first-cum-first-served basis, the bonds were oversubscribed much before the closing date. For example, NHPC, NTPC and NHB had retail investor coupon rate of 8.92%, 8.91% and 9.01%, respectively, for 20 year bonds.
The limit for retail investor is Rs10 lakh. NHB issue opened on 30th December and was oversubscribed on the first day itself. The allotment, in such cases, happens on a pro-rata basis. It means even those who applied on the first day will not get full allotment. The mega success can be attributed to the excellent coupon rates that were not seen before, smaller-size issues, AAA rating and the fact that these companies had not raised bond issues in the past couple of years. Investors looking for diversification may have grabbed these issues rather than those of REC, HUDCO and IIFCL that have been issuing bonds in several tranches recently. If you missed out on the tax-free bond issues, you can still pick them up from the secondary market. A few more tax-free bond issues are expected in the primary market after IRFC opens on 6th January.

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Top-rated Corporate Bond Yields

You can expect to get yields of nearly 10% for AAA rated bonds maturing in the next two years. Bonds with lower than AAA rating will give approximately 11% yield to maturity (YTM). Since RBI did not hike the repo rate, the bond yields should remain steady in the near term.

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Top G-Sec Yields

G-Sec yields for different maturities have been marginally down by up to 0.05% due to 10-year benchmark G-Secs rate remaining almost unchanged. You can expect to get YTM of 9.23% for bonds maturing in 15 to 30 years.

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