Bond yields in India differ according to the issuer, maturity, credit quality, and market conditions. In general, government securities offer lower credit risk, while corporate bonds and NCDs can offer higher yields because investors take on additional issuer and liquidity risk.
Government Securities
Government securities include Treasury Bills and longer-term Government of India bonds. Current indicative yields are roughly:
- 91-day Treasury Bill: around 5.28%
- 182-day Treasury Bill: around 5.75%
- 364-day Treasury Bill: around 6.04%
- 5-year government bond: around 6.72%
- 10-year government bond: around 7.04%
- 30-year government bond: around 7.56%
Longer-term government securities currently offer higher yields than short-term Treasury Bills, but their prices can move more when interest rates change.
Corporate Bonds
Corporate bonds generally offer higher yields than comparable government securities because investors are taking on credit risk.
Recent market levels show high-quality corporate bonds offering roughly 7%–8%, with the exact yield depending on the issuer and maturity. Lower-rated companies may offer considerably higher yields, but the additional return comes with greater default and liquidity risk.
NCDs
Non-Convertible Debentures can provide some of the higher yields available in the Indian debt market.
Current NCDs can be found with yields around 8%–10% or higher, while some lower-rated or less-liquid securities can offer yields above 10%. However, a high yield should always be examined alongside the issuer's credit rating and financial position.
How the Three Compare
Government securities:
Generally have the lowest credit risk and are suitable for investors who place greater importance on capital security.
Corporate bonds:
Can provide higher income than government securities, but investors must assess the company's ability to repay interest and principal.
NCDs:
Can offer attractive yields, but the risk varies widely depending on the issuer, rating, security, maturity, and liquidity.
Credit Rating
Credit rating is one of the first things to check.
Higher-rated bonds generally indicate stronger assessed credit quality. Lower-rated bonds can offer higher yields because investors are being compensated for accepting greater credit risk.
Therefore, a bond offering 10% should not automatically be considered better than a government bond offering 7%. The additional 3% may represent additional risk.
Maturity
Maturity affects both yield and interest-rate sensitivity.
- Short-term bonds: Usually have lower interest-rate sensitivity.
- Medium-term bonds: Provide a balance between maturity and potential income.
- Long-term bonds: Can offer higher yields but can experience larger price changes when interest rates move.
Investors should match maturity with when they expect to need their money.
Liquidity
A high-yield bond may not be easy to sell before maturity.
Before investing, check:
- Trading volume
- Bid-ask spread
- Recent transactions
- Whether the bond is actively traded
- Availability of buyers
- Whether the bond is listed
Low liquidity can make it difficult to exit at a desirable price.
Other Factors to Check
Investors should also examine:
- Issuer's financial strength
- Secured or unsecured status
- Coupon structure
- Yield to maturity
- Call or early-repayment provisions
- Tax treatment
- Minimum investment amount
- Inflation
- Interest-rate risk
- Default risk
- Reinvestment risk
Conclusion
In India, government securities generally provide lower credit risk, while corporate bonds and NCDs can provide higher yields with additional risk. Treasury Bills are useful for shorter periods, while longer-term government securities can provide higher yields. Corporate bonds and NCDs may offer still higher income, but investors need to examine the issuer and security carefully.
The most important point is to compare yield with credit rating, maturity, liquidity, security, and overall risk rather than simply choosing the bond offering the highest percentage.