At least two overseas dollar-denominated bonds issuances by Indian banks have been delayed after the US debt markets turned volatile on fears Federal Reserve may start to pare down its asset purchase programme.
Canara Bank, which was looking to raise as much as $1 billion through dollar-denominated bonds, and Syndicate Bank, which had planned to raise $500 million, were expected to open their book this week after completing roadshows last week. Investment bankers say the plan has been delayed as the market has become very volatile since the last week of May.
?The market has become volatile, so the issuances by Canara Bank and Syndicate Bank may be delayed further till we see some stability,? an investment banker said.
At the end of May, Federal Reserve chief Ben Bernanke had said a decision to cut the current pace of bond purchases may be taken at its “next few meetings”. The Fed has been purchasing treasuries and mortgage-backed securities at a monthly run rate of $85 billion under its quantitative easing programme.
Some of the caution has already started to creep into the markets as reflected in the US treasury yields. The US 10-year yield traded around 2.12% this week, close to 14-month high. The benchmark yields climbed to 2.23% on May 29, the highest since April 2012, after reaching a 2013 low of 1.61% on May 1. Dollar-denominated bonds are priced in reference to US treasuries and hence a rise in treasury yields means a higher cost of borrowing for issuers.
?The overall overseas bond issuances by Asian countries will pause for a while as the market assess and weigh alternatives if the QE3 slows,? another investment banker said.
Some investment bankers and bond issuers, however, warned the markets have been overreacting to recent comments from the US Federal Reserve. They said markets have been quite uni-directional in last few months and a correction was inevitable.
?People are looking far ahead, even if the quantitative easing is slowed, it will be calibrated. The correction was waiting to happen any which way. Now what is important is the US non-farm payroll data due on Friday. If that is weak then Fed will continue to pump in liquidity at the same pace,? said David Rasquinha, the executive director, Exim Bank, which has been one of the biggest overseas bond issuer from India.
