Liquidity provisions helped cut financing costs in corp bond market: RBI

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Published: July 14, 2020 12:30 AM

"These measures have also rekindled the risk appetite, as evinced in the compression of spreads of corporate bond yields over similar tenor G-Secs from the elevated levels witnessed in the last week of March 2020," the RBI said.

With funds from the RBI's liquidity operations making their way to the bond market via banks, yields in the corporate bond market saw significant softening.With funds from the RBI’s liquidity operations making their way to the bond market via banks, yields in the corporate bond market saw significant softening.

The targeted liquidity provision through long-term repo operations (LTROs) and targeted long-term repo operations (TLTROs) has brought financing costs down in the corporate bond market to decadal lows, eased the access of non-AAA rated entities and led to record primary issuances, the RBI said it its July bulletin.

“These measures have also rekindled the risk appetite, as evinced in the compression of spreads of corporate bond yields over similar tenor G-Secs from the elevated levels witnessed in the last week of March 2020,” the RBI said.

Indeed, bond issuances during the first quarter of fiscal year 2020 stood at Rs 2.09 lakh crore, having risen by over 28% compared to the same period last year. It is noteworthy that the corporate bond market was facing significant illiquidity in the initial months of the Covid-19 crisis. With funds from the RBI’s liquidity operations making their way to the bond market via banks, yields in the corporate bond market saw significant softening.

The RBI also said despite the increase in government borrowings and a significant loss of revenue due to the lockdown, the G-secs market has remained resilient and stable owing to targeted interventions by the RBI comprising LTROs, outright open market operations (OMO) purchases and Operation Twists.

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