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Informist, Friday, Jan. 17, 2025

By Ashna Mariam George 

MUMBAI – The Reserve Bank of India's decision to hold variable rate repo auctions on a daily basis led to a 3-4 basis points fall in yields on corporate bonds maturing in three years and five years, dealers said. The yield on 10-year paper was down by 2 bps as the RBI's measure was for short-term liquidity management. Also, 10-year corporate bonds are not actively traded in the secondary market, dealers added. 

Yields on corporate bonds ended steady in the secondary market on Thursday, as most participants only made trades to meet their portfolio requirements. The impact of the RBI's variable rate repo decision was minimal in the corporate bond market. 

"VRR is the major reason for yields falling...since liquidity is being injected by the RBI, there is no selling pressure in the market," a dealer at a mid-sized brokerage firm said. "Trade and volume are mostly concentrated in the one-to-two year segment." 

The RBI on late Wednesday said it would hold variable rate repo auctions on every working day starting Thursday "until further notice". "On a review of current and evolving liquidity conditions, it has been decided to conduct Variable Rate Repo auctions on all working days in Mumbai with reversal taking place on the next working day, until further notice. The reversal of VRR auction conducted on a Friday will take place on the ensuing Monday or the next working day, if Monday is a holiday in Mumbai," the RBI said in a press release.

As a reaction to the RBI's decision to hold daily variable rate repo auctions, the yield on the 10-year benchmark government bond fell over 5 basis points on Thursday. "Ultimately, the corporate bond market is a little slow to react... the initial movement comes in the government bonds, since they are more liquid compared to corporate (bond) market," a fixed-income fund manager at a mid-sized mutual fund house said. "Compared to the g-secs (government securities), the corporate bonds hadn't rallied that much so now it's coming at its fair valuation."

In the secondary market, deals aggregating to INR 54.03 billion were recorded on the National Stock Exchange and BSE combined at 1500 IST, against INR 77.94 billion on Thursday. Mutual funds and a few foreign banks were on both buying and selling sides, dealing in papers of maturities up to three years, dealers said. 

Papers issued by the National Bank For Agriculture And Rural Development, REC, HDFC Bank, Bajaj Finance, Rajasthan Rajya Vidyut Prasaran Nigam, and Shriram Finance, were traded most on exchanges. 

In the primary market, Indian Renewable Energy Development Agency set a coupon of 7.28% on its bonds maturing in 10 years, and accepted bids aggregating INR 13.30 billion. According to the bid book accessed by Informist, the issue received 49 bids aggregating INR 24.05 billion in the range of 7.00-7.50% coupon. Market participants said the coupon was in line with their expectations. Insurance companies and pension funds were the major investors, they added. 

UDAY BONDS

In the secondary market, Ujwal DISCOM Assurance Yojana bonds aggregating INR 518.35 million were traded at a weighted average yield of 7.1159-7.3742%, data from the Reserve Bank of India's Negotiated Dealing System–Order Matching System showed.

* INR 320.00 million of Punjab's March 2030 and March 2031 bonds were traded at 7.1159-7.1750%

* INR 100.00 million of Jharkhand's March 2031 bonds were traded at 7.1760%

* INR 33.00 million of Haryana's March 2025 and June 2025 bonds were traded at 7.2062-7.3742%

* INR 32.00 million of Rajasthan's June 2025 bonds were traded at 7.2065%

* INR 23.35 million of Telangana's March 2028, March 2029 and March 2032 bonds were traded at 7.1777-7.1891%

* INR 10.00 million of Chhattisgarh's March 2029 bonds were traded at 7.1886%

End

Edited by Akul Nishant Akhoury

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