Perpetual bond yields nosedive after PSB capital infusion plan

Perpetual bonds are called so because there is no set time period for maturity of these bonds

Following the recapitalisation announcement by the government, the yields on the perpetual bonds issued by public sector banks (PSBs) have dropped drastically. Taking advantage of that, some banks have started raising money at a low cost and investors, such as mutual bonds, can’t seem to get enough. 

The fall in yields is as much as 150 basis points in some cases, as the banks are seen well-capitalised for the next few years and don’t need to depend on markets for their capital. As yields fall, prices of bonds rise. 

The key worry for bondholders is that banks can potentially skip the coupon