As tax-free bonds flop, PSUs turn to private placements

PSUs are regular and large issuers of bonds via private placement and typically account for at least a fifth of the issues.

According to Prime Database, PFC was the second-biggest bond issuer during April-September, raising Rs 12,498 crore. With the expected supply of bonds, the spread between corporate bond yields and those on government bonds may widen, bankers said.

“Till now, corporate bond yields had fallen and government bond yields were steady. But during January-March, corporate bond yields will rise,” said a merchant banker at another private bank.

Yield on 10-year corporate bonds issued by a PSU is around 8.80-9.00% currently while that on the 10-year benchmark 8.15%, 2022 government bond has eased marginally to 8.11%, keeping the spread at around 70-80 basis points.