Following the Reserve Bank of India?s (RBI) decision to hike key ratio and rates ? cash reserve ratio, repo & reverse repo rates ? by 25 basis points, the yields on government securities and corporate bonds have witnessed a fall. While yields on the corporate bonds have witnessed a fall of 7-8 basis points, yields on the government securities have tanked by almost 10 basis points.
The benchmark 6.35% bond paper maturing 2020 fell by 10 basis points on Tuesday. ?The policy is very much in lines with the expectations. Hence the bond market has not seen nervousness,? said Hitesh Shah, assistant VP at AK Capital Services. The yield on 6.35% paper due January 2020 dropped to 7.98% on Tuesday as against 8.08% on Monday.
At the same time, Power Finance Corporation?s 10-year bonds were priced at 8.78-8.82% on Wednesday as against 8.80-8.85% on Monday. S Srinivasa Raghavan, vice-president & head of treasury at IDBI Gilts noted that would will harden only after June or July. ?Corporate bond yields have now fallen taking a cue from the from the government securities. We can expect some movement in the corporate bonds only after the busy season picks up. We expect the yields to stay at these levels for now,? he added. Raghavan also noted that the spreads between the government and corporate bonds (annualized) are now close to 63 basis points as compared to 100 basis points about two months ago.
?Government bond yields have been very volatile as compared to corporate bonds, hence the spread is down,? he explained.
Traders believe that the RBI is unlikely to touch the key rates till June, after hiking the repo and reverse repo rates by 50 basis points in a month. ?Trading is actively happening in the short-term papers maturing up to three-years as most traders expect the yields to rise slightly,? said a dealer with a public sector bank. Raghavan noted that currently there is active demand from provident funds and pension fund players in the corporate bond market. However, supply is muted.
Volumes on the clearing platforms of National Stock Exchange and Bombay Stock Exchange stood at close to Rs 900 crore as against Rs 585 crore on Tuesday.
In a bid to give a boost to the corporate bond market in India, the central bank has proposed to allow banks to classify their investments in non-SLR bonds issued by companies engaged in infrastructure activities and having a minimum residual maturity of seven years under the held to maturity (HTM) category. At present, banks? investments in non-SLR bonds are classified either under held for trading (HFT) or available for sale (AFS) category and subjected to ?mark to market? requirements.