The corporate bond market has seen a 30% slowdown in trading as the high interest rate and tight liquidity scenarios have dampened the resource raising plans of financial institutions, banks and companies. With rising corporate bond yields, traders prefer to stay off this market. Consequently, volumes have fallen.
Data from Clearing Corporation of India Ltd (CCIL) shows a steep fall in volumes from Rs 9,500 crore in June to Rs 6,000 crore in July.
?Because of a rising trend in interest rates and corporate bond yields, traders prefer to stay out of this market. There are hardly any fresh issuances in the market, and there are very thin trades happening. Volumes have shrunk in a big way and will continue to so,? said Golak C Nath, vice president & economic advisor with CCIL.
Nath pointed out that mutual fund players, key investors in corporate bonds, now either hold cash or invest small amounts in short-term papers like certificates of deposits (CDs) and commercial papers (CPs).
Dealers said bank CDs and CPs up to one year are being actively traded. CDs of three months to one year are priced between 9.35% and 10.95%.
New issuances have also fallen considerably. Among the few new issuances of late, Housing Development Finance Corporation (HDFC) raised Rs 400 crore by privately placing 10-year bonds on Tuesday. The company sold 10-year bonds at 11.15 % payable annually. On Monday, PFC raised about Rs 500 crore through 5-year and 10-year bonds. The 5-year bonds will pay a coupon of 10.90% and the 10-year bonds will pay 10.85%, annually, said a corporate bond dealer, indicating that fresh issuances, even with higher rates, are few and far between.
Most issuers like banks and public sector companies have remained on the sidelines due to the rise in yields, market players said.
Kaustubh Kulkarni, head of debt capital markets at Standard Chartered Bank, said the market is bearish. ?There is hardly any activity. Volumes have thinned out and there is demand only at the shorter end. We feel volumes will continue be on the lower side as there is a lot of turmoil in the market, following the rate hikes by the RBI,? he said.
Dealers said that following the rate hike, the 10-year AAA rated private corporate paper has inched up by 35-50 basis points while the public paper is up by 25 bps.
Kulkarni also pointed out that companies might now look at re-aligning their investment plans. ?Given the current scenario, corporates may either defer their funding plans or may borrow in short-term papers. On the whole, their funding requirement may come down,? he said.
Dealers said Power Finance Corporation and REC are the only companies which are active in raising capital. In July, Sundaram Finance, Exim Bank, IDFC, REC, HDFC and PFC were the major issuers while June saw issuers like HDFC, Tata Power, Nabard, REC and PFC raising capital.