Advantage issuers in corp bond mkt

It has been perhaps an issuers’ market in corporate bonds over last one month as companies could raise funds through 10-year bonds at just 2-3 basis points higher than through 1-year corporate bonds.

This could change now as 1-year bond yields could ease by January end, wiping out this advantage for issuers as most participants expect the Reserve Bank of India to cut rates at the policy review.

“The curve could steepen once short-term rates correct downward. We could see a spread of at least 5-10 basis points between 5-year and 10-year bond,” said Ajay Manglunia, head, fixed income at Edelweiss Financial Services.

The yield curve, currently flat, is expected to get steeper as short-term yields fall. The 1-year corporate bond yield is currently around 8.7% while both 5-year and the 10-year corporate bonds were at 8.74% in the secondary market. Companies have raised over R26,000 crore through corporate bond issuances across tenures during October-December.

In December, Power Finance Corp raised R1,000 crore through 2-year bonds at 8.75% and Exim Bank raised funds at 8.76% yield through 5-year bond.

“If we see a rate cut in January as expected, 1-year and 2-year bond yields could fall sharply. The 5-year yield may also fall but not much as rate cut has been priced at,” said a merchant banker with a private bank.

One-year bond yields are expected to fall by 5-10 basis points aided not just by a possible policy rate

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