Corporate bond yields have risen by 25-30 basis points over the past few months, largely in keeping with the rise in yields in the benchmark bond that have moved up by 26 basis points since April, reports Bhavik Nair in Mumbai. Yields have risen for maturities of over three years but for shorter tenures, they have remained relatively stable.
Sidharth Rath, president, treasury and capital markets, Axis Bank, confirmed the trend. “For maturities of three, five and ten years, yields have risen by 25-30 bps since the start of the fiscal, ” he said.
Recently, Power Finance Corporation (PFC) was able to issue three-year bonds at a coupon rate of 8.40%, about 30 basis points higher than the 8.09% at which it raised money in mid-April. Steel Authority of India (SAIL) had issued three-year bonds in early June at 8.35%, which was 40 basis points higher than the 7.95% rate which it paid at the beginning of the fiscal.
On May 7, the benchmark yield hit a five-month high of 7.99% and the uptick in yields led some companies to postpone their fund-raising plans, said Sandeep Bagla, associate director at Trust Group. A few firms issued commercial paper at lower rates to pick up short-term funds and to avoid locking into higher rates in the corporate bond market. “This was common in mid-May when the yields were at higher levels due to a global sell-off in bonds,” Bagla said.
Ajay Manglunia, senior vice-president for fixed income at Edelweiss Securities, said the rise in yields could be attributed to fears of a deficient monsoon and and the Reserve Bank of India’s (RBI) somewhat hawkish stance at the last policy announcement in early June.
“On the international front, rising crude oil prices, fears of a lift-off in the US Fed funds rate and worries emanating from Europe have kept markets on their toes,” he said.
Although the effect of the RBI’s hawkish tone on corporate bond yields started to lessen in the second half of June, the Greek crisis has affected markets. However, market experts believe yields will settle down in some time once a clearer picture of the global economy emerges. “The 10-year benchmark gilt yield has been in the range of 7.88-7.90% and is likely to remain in the narrow band for two months because most of the news about a rate hike in the US has been factored in. Even if such an event occurs, the rise in G-sec yields is likely to be minor,” said Bhaskar Panda, senior regional head, treasury advisory group, HDFC Bank. Dealers are watching for domestic inflation readings, US economic developments and global volatility arising out of Greece to try and get a fix on which way bond yields are headed.
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