Translation. Region: Russian Federation –
Source: Central Bank of Russia
An important disclaimer is at the bottom of this article.
Structured bonds, the issuance of which has been booming since 2022, carry increased risks for investors regardless of their qualifications and have a weighted average yield below the market – around 3% per annum. To this conclusion The Bank of Russia came to this conclusion after analyzing the redeemed securities in citizens' portfolios over the past three years.
A typical structured bond is a contingent obligation. It is traded over-the-counter for a term of one to three years with a nominal coupon of 0.1%. Given that this instrument has no secondary market, the only investment strategy is "buy and hold." The investor is expected to receive income from a one-time additional payment upon redemption. This payment depends on the change in the price of the underlying asset: a stock index, an exchange rate, or a bond/equity of one or more issuers. Structured bonds lack capital protection, meaning the redemption payment may be less than the par value depending on whether the specified circumstances occur.
Structured bonds are issued primarily by banks, brokers, and dealers and are intended for qualified retail investors. These instruments are available through brokerage mobile apps, where clients are promised returns of 20–50% per annum under moderate and positive scenarios.
However, an analysis of financial results showed that yields on structured bonds are significantly below the market. They underperform the corporate bond index, money market funds, or OFZs over comparable maturities. Structured bonds with exchange rate underlyings demonstrated the most negative yields.
The main problem with the structured bond market is that even a qualified investor cannot assess the investment outcome when purchasing complex products. This product lacks a single formula for calculating expected returns. Furthermore, there are no return statistics, as the instrument is not traded in a "order book." The terms of the issue contain numerous clauses, making it impossible to determine which of the proposed scenarios is realistic. Issues cannot be compared due to differences in payment terms and the assets to which they are linked.
To model expected returns, an investor must possess the skills of a professional analyst. However, the structured bond market is expanding faster than investors can grasp their complexity.
The Bank of Russia will continue to monitor the complex products market to assess the feasibility of introducing regulatory changes.
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Please note: This information is raw content obtained directly from the source. It represents an accurate account of the source's assertions and does not necessarily reflect the position of MIL-OSI or its clients.