State -owned financial institutions – Indian Railway Finance Corporation (IRFC) and Power Finance Corporation (PFC) – are believed to have withdrawn their bond issues as they were somewhat unhappy with the yield that they would need to pay, dealers in the bond market said. The issues had been placed on the electronic bidding platform. Market watchers pointed out that the coupons at which subscribers were willing to pick up the bonds were higher than what these institutions had expected. IRFC and PFC could not be immediately contacted for their comments.
According to sources, IRFC was looking to raise funds via 15-year bonds for which it received the lowest bid or L1 at 7.43%. PFC was looking to issue bonds having two different tenures. The L1 for the two-year bonds stood at 6.92% while the L1 for five-year bonds stood at 7.20%. One dealer said PFC received bids close to Rs 2,050 crore for the two-year paper and Rs 1,600 crore for the five-year paper at various yield levels. Meanwhile, IRFC received eight bids of Rs 1,600 crore for its 15-year paper, the dealer said.
According to a market participant, Wednesday’s Reuters benchmark rate for a AAA-rated two-year paper stood at 6.87%, while for a five-year paper, the rate was 7.14%. The rate for a 15-year paper stood at 7.37%.
Bond arrangers believe that issuers usually remain a bit reluctant to go ahead with their bond issuances if the pricing is considerably higher than the Reuters benchmark rates. “The benchmark government securities have also hardened in recent times. This rise reflects in the corporate bond yields as well,” said a bond market expert. The benchmark yield ended at 6.53% on Wednesday, having risen seven basis points since the monetary policy announcement on August 2.
Another dealer pointed out that the market appetite may not have been conducive even as PFC just concluded a bond issue a few days back.
Bloomberg data shows that PFC issued five-year bonds at 7.1% while it issued 10-year bonds at 7.3% in the first half of this month to raise a total of Rs 4,895 crore.
This means that the pricing for a five-year bond rose by 10 basis points in a matter of 10 days. Furthermore, the consumer price index rose to 2.36% in July from 1.54% in June. The bond markets are closely watching the movement of yields, since the latest consumer inflation print came in a tad higher than estimates.