@asarun I note that there might be some confusion. Also for other readers its good to clarify.
Higher-yield is not generic market term. However, High-yield is the generic market term.
So what is high-yield? High yield in global market paralance will be bonds rated below BBB- by S&P and Fitch and below Baa3 by Moody’s. As India is rated BBB- by global rating agencies so from global standard perspective if we want to invest in investment grade (non-high-yield) then mostly the government and very few institutions (SBI, large private banks, and PSUs) might only be the option. While the rating I am talking about AA for IIFL, credit access, etc is domestic ratings.
Now coming back to domestic markets where domestic ratings start from AAA (generally government and large debt free institutions) the yield will be in 7 to 8% range max.
However, when we go down on credit quality we get slightly higher yield. However, you dont need to go down much. As we do it in finding stocks we need to evaluate each investement versus inherent risk.
Just to give an example: Nuvama is rated AA- currently. However, I know that business fundamentals are very good. Recently in there concall they highlighted they dont want to increase their credit business. Which means they will not borrow more. As credit investor I see an improving situation and MNC parentage. Also few quarters back Nuvama gave away the 3k crore credit line which was provided by parent. So company seems very confident. Now I look at what is the yield provided by Nuvama bonds in the market, they were available ~11% and now they have closer to 10%. As we keep PE in mind for stocks I understand that with such quality its credit ratings should improve and yield should fall below 10%. So it’s not about chasing higher-yield its about how we chase a balance of growth and valuations in the stocks. So fundamental direction vis a v yield.
In fact I will not invest in high-yield bonds as you alluded to risks. Also remember you need to do a good work, ILFS was rated AAA at some point of time, I think DHFL was also in AA category. So nothing is easy your financial analysis, your trust on company provided number, yield (price), all come in picture.
Hope this helps the reader.
Disclosure: invested in Nuvama bonds and stock.
Disclaimer: I am not a financial advisor and nor a SEBI registered Analyst. The content shared here is only for learning purpose. All the names mentioned here are for example purpose. I may buy more, exit or partly sell the stock/bonds without any prior intimation.
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