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PRObondsmonitor. High yield bonds. PIR or not PIR?

PRObondsmonitor.  High yield bonds.  PIR or not PIR?
High yield bond yields rose. Quotes fell. True, the decline from the highs of the beginning of the year is more moderate than in the first corporate echelon or in government securities: the average price correction in VCO – -0.4%, in the first echelon of corporate bonds and in regional bonds – -0.7%, in OFZ – – 1.1%. I am wary of the upward trend in yields. But, objectively, this week the trend has stopped. So I will not make far-reaching conclusions.

In the meantime, I propose to make a distinction already within the VDO segment itself. The Moscow Exchange is allocating a number of bonds to the High Investment Risk Sector (IDR); since spring 2020, they have a separate trading regime. The exchange does not disclose the full criteria for classifying securities in this sector, but it can be assumed that the determining factors are weak audit, no or low credit rating, belonging to risky industries, low performance or high debt load of the business.

Among the relatively liquid issues of HDV with a volume of 200 million rubles or more as many companies got into the PIR as remained outside it. The durations of both lists are also close: for securities from PIR – 1.6 years, for securities outside the risk sector – 1.4 years. But the difference in profitability draws attention. For bonds that are not in the risky sector, the average effective yield is 9.8% per annum. For the IDP sector – 11.3%. The difference reaches an impressive one and a half percent.

Whether through the efforts of the Moscow Exchange or due to the balance of supply and demand, bonds that have received the formal sign of higher risk have a statistically significant deviation in yield. I am not sure about the strict relationship between being or not being in PIR and the risk of default, but since last autumn I have noted a great desire of a number of issuers to leave the risk sector. As a rule, with an understandable goal of reducing the cost of attracting and servicing borrowed capital.

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