Corporate Bond Market

What are corporate bonds?

Corporate bonds refer to securities issued by issued by Public Sector Enterprises, Public Sector Banks, All India Financial Institutions, Private Sector Companies, etc. for their business activities.

What is the tenor of corporate bonds?

The tenor of corporate bonds securities is generally in the range of 1-15 years. However, the tenor may vary depending upon the funding requirements of the issuer.

How to identify and assess the risks associated to corporate bonds?

Corporate Bonds are not sovereign and are serviced by the entity issuing them. Hence, they carry a risk of default on part of the issuing entity in fulfilling its interest or principal payment obligations.

Corporate Bonds carry a rating (usually AAA to D) as specified by the rating agencies determined on the basis of the fundamental strength of the issuer. These ratings indicate the level of risk of default of the issuer, with AAA indicating the highest safety and D indicating a high probability of risk of default. These ratings are reviewed on a periodic basis.

What are the types of corporate bonds?

There are different types of corporate bonds such fixed rate bonds, floating rate bonds, fixed rate bonds with put/call option, hybrid bonds, zero-coupon bonds, amongst others. Day count convention too, varies with each issue. An offer document is prepared for each primary issue which enumerates all the specifics to a particular issue.

How the corporate bonds are priced?

Corporate bonds are priced at a spread over the corresponding government security depending on the level of perceived risk. Also, the face value of the security is specific to each issue. The most common ones being, ₹ 1 lakh, ₹ 10 lakh or ₹1 crore. There is no specific standardized procedure for calculation of yield/price of corporate bonds as the interest frequencies/maturity pattern, day count convention etc. may be different for each corporate bond.

What is the frequency of interest payments?

Frequency of interest payments could be annual/semi-annual/quarterly/monthly, etc depending on each issuer.

How are corporate bonds trade settled?

Corporate bonds are non-SLR instruments. Trades in the non-SLR market can be conducted on T+0, T+1 and T+2 basis. The non-SLR market is largely an Over the Counter market whereby the trades are settled on the respective Clearing Platforms (namely, NSCCL, ICCL and MSEI CCL). Efforts have also been made to facilitate online trading into this segment. Trading on NSE and BSE is permitted under the Wholesale Debt Market platforms.

Brief overview on market participation

The Corporate bond market in India is still at a developing stage in terms of an efficient price discovery mechanism as well as market participation as compared to the Government Securities market. Hence, market activity is yet to pick up in terms of volumes and number of transactions.

Contact Us:

STCI PD actively transacts in the Non-SLR segment, namely Corporate Bonds, CPs, and CDs. Clients interested buying/selling Corporate Bonds may contact our Sales Personnel on 022-66202224/25/28. We endeavour to provide the best possible returns to our clients, keeping in line with their overall investment objectives.