Central Bank of Russia finds structured bonds pose heightened risks and deliver around 3% weighted average yields

The Central Bank of Russia published information for investors warning that structured bonds carry elevated risks for all investor categories and have delivered weighted average yields below market rates, at around 3% per annum, based on its analysis of redeemed securities held in household portfolios over the past three years. A typical structured bond is described as a contingent liability sold over the counter for one to three years with a 0.1% coupon and no secondary market, leaving investors effectively forced into a buy-and-hold strategy. Returns are largely dependent on a one-off payment at redemption linked to an underlying asset such as a stock index, exchange rate, or securities of one or more issuers, and there is no capital protection, meaning the redemption payment may be below face value. These instruments are mainly issued by banks, brokers and dealers for retail qualified investors and marketed in brokerage apps with stated returns of 20–50% per annum under moderate or positive scenarios, yet realised performance lagged corporate bond index yields, money market funds and federal government bonds with comparable maturities, with the largest negative yields seen where exchange rates were the underlying. The central bank highlighted that even qualified investors struggle to assess likely outcomes due to the lack of a single expected-yield formula, absence of yield statistics given non-listing on exchanges, and issue-specific limitations that make scenarios and comparisons difficult, and it will continue monitoring the complex products market to assess whether regulatory changes are warranted.