The Telegraph
Since 1st March, 1999
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US-64 bonds roar in the trading ring

Calcutta, June 16: Unit Trust loyalists couldn’t ask for more. Trading in the US-64 bond got off to a sensational start on the National Stock Exchange today, with the instrument racing to Rs 109 (face value Rs 100) on the back of strong institutional demand. This implies that investors can now move out of US-64 with hefty capital gains.

The tax-free government-guaranteed bond with a coupon rate of 6.75 per cent, is one of the highest-paying fixed-income security available to tax-payers.

Interest on the US-64 bond, which is going to mature in 2008, will be paid every six months, which takes the annualised yield to 6.86 per cent. With the yield of the benchmark 10-year government security pegged at 5.75 per cent, the price of the US-64 bond was expected to rise on listing.

Institutions — particularly banks, insurance companies and provident funds — and even high net worth individuals were expected to bet big money on the bond in the hope of capital gains, as the market expects interest rates to move further south.

But very few could predict the dramatic rise witnessed today. Experts say the price of the bond will appreciate further ahead of interest payment in December this year.

The secondary market yield of the US-64 bond had fallen to around 4.65 per cent today, but clawed back to over 5 per cent as the price fell below Rs 107. The bond debuted at Rs 108.50, and touched a high of Rs 109 before closing at Rs 106.91.

For the benefit of retail investors, the bond has been listed with the capital market segment of the National Stock Exchange. This implies that retail investors can buy or sell the bond through equity brokers.

However, the bonds can be traded only in the dematerialised form on the National Stock Exchange. Unit Trust officials had earlier indicated that they would create a special window for trading in the bonds in the physical form as well.

Unit Trust has issued bonds worth Rs 8,000 crore to investors who chose to convert their units and paid around Rs 2,200 crore in cash to those who exited the scheme. By issuing the bonds not only did the government avert a financial crisis, it also managed to buy time for the Trust to repair and profitably liquidate the assets of the scheme.

Besides its huge investments in shares and fixed-income securities, US-64 held all movable and immovable assets of the Trust. These are being gradually offloaded, including the Trust’s erstwhile headquarters in New Marine Lines, Mumbai and the substantial stake in UTI Bank. The bonds’ success has prompted the government to consider foreclosing other assured return schemes in the same way.

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