Corp bond yields to harden further

Written by Mahalakshmi Hariharan | Mumbai | Updated: Aug 27 2009, 03:33am hrs
Banks are expected to flood the market with bond issuances by the end of this quarter, leading to a further spike in corporate bond yields.

With a spike in the yields of government securities, corporate bond yields have shot up by 25-30 basis points, in the last one month.

Dealers noted that banks like Central Bank of India, State Bank of India and corporates like Nabard and NHPC will be coming up with bond issuances.

Punjab National Bank (PNB) said it would raise Rs 500 crore through Tier-I perpetual bonds to meet its business growth and capital requirements. The issue of bonds opened on Tuesday and will close on August 28. Central Bank of India and State Bank of India are likely to come up with issuances worth Rs 500 crore and Rs 2,000 crore, respectively.

Banks and corporates will come forward to issue corporate bonds in a big way. There could be some postponement in the issuances, but should happen before end of September, noted S Srinivasa Raghavan, vice-president & head of treasury at IDBI Gilts.

Raghavan added that with increased supplies the AAA 10-year benchmark paper may even cross 9%.

On Tuesday, finance minister Pranab Mukherjee said that the government may allow repos in corporate bonds shortly. If this happens, the corporate bond market will see a strong revival. This step would definitely improve the market sentiment, noted a dealer.

On Tuesday, Power Finance Corps 10-year bonds were dealt at 8.85-8.90%, as against 8.80-8.85% on Monday and 8.74-8.78% on Friday. Rural Electrification Corps five-year bonds were dealt at 8.42-8.45%, same as Monday and 8.35-8.40%on Friday. The 10-year benchmark bond, 6.90% bond maturing 2019 ended at 7.30%, lower than Mondays close 7.34%. As of now, only insurance companies, mutual funds and provident funds are trading in the corporate bond market. Banks are trading low in number, Raghavan noted. According to data from fixed income money market and derivatives association, trades worth Rs 227 crore were transacted on Tuesday, as against Rs 143 crore on Monday.