After rate cut, investors rush to tap bond markets as yields soften

By: | Updated: January 20, 2015 2:48 AM

Borrowing rates for 10-year AAA-rated public sector companies fell to 8.49% on Friday, the lowest since mid-2013, data from...

Borrowing rates for 10-year AAA-rated public sector companies fell to 8.49% on Friday, the lowest since mid-2013, data from Fixed Income Money Market and Derivatives Association of India (FIMMDA) show. Meanwhile, Power Grid Corporation has raised Rs 2,580 crore through strip bonds of five-, seven-, 10- and 15-year tenures, sources said. The bond was priced at 8.20%, 73 bps lower than the 8.93% coupon rate at which the state-owned entity had issued bonds in October 2014.

With rates falling, regular issuers like Power Finance Corporation, Rural Electrification Corporation, Power Grid Corporation and Indian Railway Finance Corporation may together raise close to Rs8,000 crore to Rs 10,000 crore in the next few weeks. “Investors are expecting repo rates to come down by another 50 bps in 3-4 months. Correspondingly, corporate bond yields are likely to soften as well,” said Sandeep Bagla, associate director, Trust Group.

The Reserve Bank of India (RBI) cut the repo rate by 25 bps on January 15, driving down the benchmark yield on gilts to 7.69%.  Rural Electrification Corporation is also likely to invite bids for issuing bonds worth nearly Rs 500 crore on Tuesday, according to sources. The issue, which has a tenure of 10 years, comes with an unspecified greenshoe option, the sources added. For perpetual bonds — riskier instruments that have no maturity date and, hence, higher yield than other corporate bonds — the average rate in the market is around 9.40%, which is lower than the prevailing rates a few weeks back, according to some market experts.

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Among the bigger borrowers are banks that are trying to raise money through additional tier-I bonds to meet their capital requirements.

Lenders like Canara Bank, Union Bank, Punjab National Bank, Central Bank and a few others are also likely to issue perpetual bonds in the coming weeks, said a source. “These banks are gauging the appetite of investors,” sources said, adding that the banks may together raise a total of Rs 6,000 crore in the coming weeks. Foreign portfolio investors (FPIs), having exhausted the investment limit in government bonds, are also beginning to show interest in Indian corporate bonds that are liquid and are backed by the Central government.

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