The Hindu Business Line : US-64 bonds active in secondary market

The bonds, issued in June 2003 as a conversion option to holders of the erstwhile Unit Scheme 64, are doing well on the secondary market, thanks to those who seem to be clued in with regard to the features embedded in them.

The market for the bonds has also received a boost recently after the announcement of a Triple-A rating by ICRA. The rating agency stated it was reaffirming its LAAA (SO) rating - indicating highest safety - to the outstanding US-64 bonds programme.

The bonds are said to have logged steady volumes in the recent past, say investors aware of the latest trends. In this context they refer to some of their inherent characteristics, which are said to be particularly attractive. These include their tax-free status, interest rate of 6.75 per cent, no lock-in period and guarantee by the government. In other words, the bonds score on two fronts: Liquidity and credit risk.

The bonds, it is pointed out, have a face value of Rs 100 and are currently available in the secondary market at a fair premium. The instruments are now quoting in the Rs 102-103 range, with the number of trades somewhat fluctuating. On May 24, the closing price was Rs 103.01. There were 40 trades in all, with the total value standing at Rs 15.86 lakh.

ICRA, it may be mentioned, has simultaneously rated the 6.6 per cent ARS bonds of the Specified Undertaking of Unit Trust of India (SUUTI), which were offered in April 2004 to those who had invested in various assured-return, fixed-duration schemes. The two ratings, the agency has pointed out, have factored in the "unconditional, irrevocable and the continuing guarantee of the Government of India for servicing the interest and principal on these bonds."

As for the US-64 bonds, the market's expectations on the returns front match what was actually indicated by SUUTI when it presented the bonds to US-64 investors. It was then suggested that the bonds would provide pre-tax returns of 10.38 per cent for those in the 35 per cent tax bracket. They were made transferable and tradable in the secondary market, while even non-individuals were given the freedom to invest (unlike other tax-free bonds).

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