Yields on short-tenure bonds have risen by close to 50 bps since the start of the fiscal if the difference in bid and ask rates for a recently proposed bond issue is anything to go by.
On Thursday, public sector unit Steel Authority of India (SAIL) postponed its short-tenure bond issue after investors sought coupon rates ranging from 8.43% to 8.72%, sources close to the development said. The company had earlier issued short-tenure bonds in the first half of April at a coupon rate of 7.95%.
“SAIL wanted to issue three-year bonds at a coupon rate of 8.25-8.30%, but the yields demanded by investors were higher,” a bond arranger said.
In early April, Indian Railway Finance Corporation (IRFC), the financing arm of Indian Railways, Export Import Bank of India (EXIM) and SAIL had raised funds through short-tenure bonds at a coupon rate of 7.95%.
Yields had dropped then because mutual funds were investing the rollover funds available from fixed-maturity plans (FMP) in bonds, and issuances were comparitively fewer in number compared to March. In at least one of the three bond issues that got the rate of 7.95%, a source had indicated that the entire quantum of the bond isue was picked up by mutual funds.
However, over the last few days, a global selloff in bonds had worsened the yield scenario, which was already being threatened by rising crude prices that had shrunk any possible chance of a further rate cut in near term due to inflationary concerns.
“The market was expecting a rate reduction in the near term. However, rising crude prices have dampened most of such expectations; hence, we are seeing this spike in yields. This level may continue to stay till there is some sort of clarity on the rates,” said Ajay Manglunia, senior vice-president-fixed income, Edelweiss Securities.
One can expect a 50-bps rate cut in the next 6-9 months, but it is hard to predict the timing, he added.
Bond arrangers say it is unclear whether the PSUs that are in line to raise funds through bond markets would go ahead with their issuances at a time when the yield scenario is not impressive.
“It is doubtful that some public sector units that are looking to raise funds from through bond markets may do it right now when the yields are at such volatile stage,” Manglunia added.
Regular borrowers like Power Finance Corporation and Rural Electrification Corporation are looking to tap the bond markets. Two subsidiaries of Power Grid Corporation —Vizag Transmission and NM Transmission company— are also in line to raise Rs200 crore each with an option to retain over-subscription, according to market experts.
Nuclear Power Corporation of India (NPCIL) may tap the bond markets in the first week of June even as the company is waiting for the committee approval for the structure of borrowing, a source said.
NPCIL had raised Rs4,400 crore through the bond market in FY15 via two separate issuances and is planning to increase its borrowing this fiscal even as many of its projects will gain pace this year, a company source had said.