With increasing interest in bringing fixed income onchain, it’s more important than ever to understand the ecosystem of finance’s credit products. Tokenizing these products offers enhanced transparency, liquidity, and efficiency through overcoming the constraints of traditional financial systems.
Likewise, an understanding of these products is important in constructing an RWA investment portfolio. The Centrifuge Credit Group, a decentralized group of credit professionals, has provided asset primers on all major categories of the fixed income market.
Keep reading for an a summary of these asset primers and an overview of the different types of fixed income products!
I agree that there is high demand for tokenized, non-investment grade bonds. While the potential returns are attractive, I have concerns about security and stability. We have seen billions of dollars worth of hacks in the ecosystem since 2016.
Thank you for sharing. I have couple of question on this when you are considering to take the Fixed income Products to retail or smaller invertors the grading system is really helpful.
But to my understanding the its mainly the banks or the financial institutions that evaluate the grading and also most of them are focus on US market. How do we can explore this information for opportunities outside US like in Europe or UK for example.
High yield bonds are one of the most efficient asset classes in the RW. In contrast to equities, bonds offer a pull to par. In other words, irrespective of market direction so long as the issuer continues to service the debt, the bond will pull back to its par value. The second interesting thing about high yield bonds is the make whole call provision embedded in many issues. The make whole call provision means that in the event the issuer calls the before a certain date, the issuer must pay a premium that prices the bond effectively as if it the yield 50 bps over a US Treasury bond. Depending on the interest rates the make whole call provision can add 20 bond points to the redemption price, meaning the bond is redemption at 20% over par value. Another thing that can positively impact high yield bonds is improvements over time in credit quality. I can envision tokenizing a portfolio of high yield bonds either as a fund or in a collaterlized structure.
