Bonds and the Bond Market in India
Defaults and Lessons: IL&FS and Yes Bank
The IL&FS default in 2018 and the write-down of Yes Bank's AT1 bonds in 2020 showed that bonds can lose value, even when investors thought them safe.
Risk shows up eventually.
IL&FS
A AAA-rated infrastructure lender defaulted in 2018, shaking markets.
Yes Bank AT1
In 2020, the bank’s AT1 bonds were written down to zero during its rescue, leaving investors with losses.
Lesson
High yields reflect higher risk, and ratings are not guarantees.
Diversification
Spreading money across issuers reduces damage.
A written-off bond
Investors who bought high-yield bank bonds lost their entire investment.
Assuming a high rating means no risk
Ratings can change quickly.
Key takeaways
- IL&FS defaulted in 2018.
- Yes Bank's AT1 bonds were written down.
- High yield means high risk.
- Diversify.
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