Informist, Friday, Dec 15, 2023
By Abhinaba Saha
MUMBAI – The corporate bond market ended the week on an ebullient note, as yields on shorter-tenure corporate bonds slumped on account of euphoric buying following the Reserve Bank of India’s surprise move to infuse 1 trln rupees in the banking system through a seven-day variable rate repo auction, dealers said.
Yields on 3- and 5-year papers plunged by 9 basis points and 5 bps respectively, due to robust buying by mutual funds. Banks emerged as major sellers of these bonds today as they saw an opportunity to book profits on their existing holdings at current yield levels, dealers said.
Meanwhile, lack of enough activity kept yield on 10-year papers steady, dealers said. Papers issued by Uttar Pradesh Power Corp, REC, Power Finance Corp, National Bank For Agriculture And Rural Development, Indian Railway Finance Corp, Andhra Pradesh State Beverages Corp, Cholamandalam Investment And Finance Co, Tata Capital Financial Services, Sundaram Finance, and National Highways Authority of India exchanged hands on the bourses.
“VRR (variable rate repo) has been a game changer. Suddenly we are almost at levels seen prior to the RBI’s October policy meeting. So banks will obviously sell,” said a fixed-income dealer at a large mutual fund house.
Even though today’s variable rate repo auction provided much-needed respite from the tight liquidity conditions in the banking system, market participants see this as temporary. Around 1.75 trln rupees worth of outflows are slated until Sunday in the form of advanced tax payments.
At the end of trade on Thursday, liquidity in the banking system was in a deficit of 442.85 bln rupees, as against 387.75 bln rupees on Wednesday, according to RBI data.
“It is a clear indication that they are not comfortable with overnights above 6.75%, and we may see many such liquidity operations happening more frequently from here on,” the dealer said.
Despite today’s exuberance, market participants remain cautious of supply side pressures in the primary market.
“Corporate bonds have been terribly mispriced because of the existing supply in the market. Moving forward, if the supply dries up from the frequent issuers…then we can see a sustained (yields) movement on the downside,” the dealer said.
Market participants digested around 90 bln rupees worth of fresh corporate bond issuances this week, with around 132 bln rupees worth of issuances slated for Monday alone.
According to merchant bankers, primary market supply would be dominated by banks and big-sized public sector companies such as Bank of Baroda, HDFC Bank, State Bank of India, NABARD, National Bank for Financing Infrastructure and Development, or NaBFID, among others.
On Monday, HDFC Bank will tap the primary market to raise up to 100 bln rupees through its infrastructure bonds maturing in 10 years, while Shriram Finance will seek bids for two of its bonds with different maturities to raise up to 24 bln rupees. GMR Airports also plans to raise 8 bln rupees through bonds maturing on Nov 23, 2026.
UDAY BONDS
In the secondary market, no Ujwal DISCOM Assurance Yojana bonds were traded, according to data from the RBI’s Negotiated Dealing System-Order Matching System.
BENCHMARK LEVELS FOR CORPORATE BONDS:
End
Edited by Aditya Sakorkar
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