Yields on perpetual bonds issued by banks have shot up in the secondary market as mutual funds (MFs) — the primary investors in these bonds — jostle to sell the papers to avail of liquidity.
Banks had issued these bonds as additional tier 1 (AT1) bonds to raise capital in the past. These bonds have a clause that if the issuer is going through financial constraints, the issuer may choose to not honour the bonds. This is precisely what happened with YES Bank in mid-March when it said AT1 bondholders won’t get their money back.
Now, most of such bonds