Yields on corporate bond, treasury-bills, commercial papers rise on domestic concerns

By Manish M Suvarna

Yields on corporate bonds, treasury-bills (T-bills) and commercial papers (CPs) are up 5-15 basis points across tenures because of domestic factors such as rising yields on government securities and a higher cut-off set by the central bank at a reverse repo auction amid low demand from investors.

“Bond yields in the US have a major impact on emerging markets. Thus, this is more or less a trickle down effect of the yield movement in the US markets. I would say these are mostly short-term, knee-jerk reactions from the market,” said Ajay Manglunia, MD and head – institutional fixed income at JM Financial.

Yields on corporate bonds maturing in three years were trading at 5.20-26%, while those on the 5-year and 10-year papers were hovering at 5.76-79% and 6.79-85%, respectively.

Yields on CPs issued by NBFCs maturing in three months were trading between 3.82% and 4.00%. CPs issued by manufacturing firms were in the 3.44-3.58% range. Both the segments have witnessed a rise of around 10-15 basis points in the last three-four days.

On September 29, the RBI set higher cut-off yields on T-Bills at 3.4488% for 91-day, 3.5669% on 182-day and 3.8100% on 364-day.

“Markets are anticipating policy normalisation from the central bank. Higher cut-off in the 7-day VRRR has seen a ripple effect on the yield curve starting from overnight rates to up to 5 years. Higher US yields, along with rising crude oil prices, have added to the upwards pressure on the yields,” said Anand Nevatia, fund manager, Trust Mutual Fund.

In the 7-day VRRR auction on September 28, banks had offered a lower amount to park the notified amount and the cut-off set by the central bank was higher than what market participants had expected. The RBI set a 3.99% cut-off, with a weighted average of 3.61%. This led to the speculation about policy normalisation.

Most banks have avoided placing bets in the reverse repo auction ahead of the quarter-end and those who wanted to invest demanded higher returns. “This very much seems to be a transient phenomenon, and we would wait for the October policy for a better clarity on the liquidity normalisation process,” Manglunia said.

Meanwhile, the rise in yields on government securities by 9 basis points in three days has a cascading effect on longer-term corporate bonds. Rising US Treasury yields and higher oil prices were major reasons for the rise in yields on benchmark bonds. But the market has got comfort after the government kept its borrowing for the second half unchanged at Rs 5.03 lakh crore.

“Remember, the government is still sitting on unusually high cash surplus. As it starts spending, short-term money market rates should soften,” said Pankaj Pathak, fund manager, fixed income at Quantum Asset Management.