After registering high volumes in the first four months of 2010-11, trading volumes in the corporate bonds market have declined in August with volumes at Rs 50,403 crore. That is about 21% lower than the reported volume of Rs 63,782 crore in July and way below the Rs 72,711 crore seen in May 2010, according to the data with the Securities & Exchange Board of India (Sebi).
The fall in volumes is attributed mainly to investors? outlook on interest rates in the wake of the calibrated hardening of policy rates by the Reserve Bank of India (RBI). Domestic players, including mutual funds and insurance companies, have been among the bigger sellers, according to traders who say that rising interest rates have caused a fall in the value of the bonds.
Said Ashish Vaidya, who tracks the bonds at UBS, ?Lower volumes in corporate bond market are an outcome of uptick in yields over the last few months. Shorter-term yields rose by 100-150 basis points and consequently investors incurred losses.”
With rates expected to rise, there clearly isn?t too much appetite among traders. Adds Arvind Sampath, director, rates trading, Standard Chartered Bank, ?A tight liquidity scenario in a rising interest regime could be the reason behind lower volume. However, the situation would change and volumes could improve with the monetary policy giving some direction to the market.?
According to Manish Dange, head ? fixed income, Birla Sun Life Mutual Fund, still there is a case for a 25 bps hike in reverse repo since the RBI clearly wants tight liquidity to combat inflation and keep liquidity just enough.
?We would shy away from corporate bonds till December. Currently, we are not going long on corporate bonds but are buying three-months certificates of deposits and commercial paper market,? said Dange.