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Informist, Thursday, Aug 1, 2024

By Sachi Pandey

MUMBAI – Yields on corporate bonds ended steady across tenures in the secondary market today as volume remained low amid lack of firm domestic cues, said dealers. Even the government bond market saw limited activity, despite an overnight fall in US Treasury yields after the US Federal Open Market Committee kept the interest rate unchanged on Wednesday, dealers said.

"The market did not see much activity, we expected g-sec (government securities) to come down, but there was not much movement there either, so corporate bonds remained largely range-bound", a dealer at a mid-sized brokerage firm said. The yield on the 10-year benchmark US Treasury note fell to 4.05% against 4.14% at the time the Indian market closed on Wednesday. Back home, yields on the 10-year benchmark government bond closed at 6.93% on Wednesday and at 6.92% today. 
 

The US Federal Open Market Committee kept the federal funds target rate unchanged at 5.25-5.50% for the eighth consecutive meeting in July, with a unanimous decision by all 12 voting members. This outcome was widely anticipated by the market, though the shift towards a softer monetary policy outlook was somewhat unexpected, dealers said. US Federal Reserve Chair Jerome Powell indicated high odds of a rate cut in September if inflation data shows a slowdown in the economy, dealers said. 

The secondary market of corporate bonds remained lacklustre with only mutual funds and traders actively buying and selling to adjust their portfolios, according to dealers. Trade volumes remained low, with deals aggregating 57.78 bln rupees recorded on the National Stock Exchange and BSE combined, against 42.35 bln rupees on Wednesday.

Bonds issued by REC, HDFC Bank, Indian Railway Finance Corp, National Bank for Agriculture and Rural Development, Aditya Birla Housing Finance, Shriram Finance, Small Industries Development Bank of India, Power Finance Corp, and Navi Finserv were traded across tenures today.

Meanwhile, the primary market was also rather underwhelmed today, with Bank of Maharashtra raising only 8.11 bln rupees through an infrastructure bond maturing in 10 years, out of the 30 bln rupees it had planned to raise. The bank raised the funds at a coupon of 7.80%. 

Initially, the bank announced a coupon of 7.75% to raise 5.9 bln rupees, but revised the coupon upward to increase the mop-up from the bond offering. "They decided to raise more funds later on as they had requirements, so they had to revise the coupon as well," a fixed income fund manager at a large-sized general insurance company told Informist. 

Market participants also noted low demand for the bond. Despite extending the bidding by 30 minutes, the bank only received 24 bids worth 13.90 bln rupees in the range of 7.41-8.49%, according to a bid book accessed by Informist. The bidding, initially scheduled from 1100 IST to 1330 IST, was extended until 1400 IST.

"We expected a better response for the issuance, but it was surprising for us also that they did not get the demand," a fixed income portfolio manager at a large-sized mutual fund house said. "Probably, factors like the credit rating and the bank's regional nature may have influenced demand." The bonds are rated 'AA+' by CARE and ICRA Ratings. 

Market participants indicated that small pension funds and insurance companies were the primary investors in the bond issue.

On Friday, SMFG India Credit Co is in line to tap the market to raise funds through two bond issuances. The non-banking financier plans to raise up to 8.75 bln rupees through bonds maturing on Jun 2027 and 8.25 bln rupees through bonds maturing in two years. Summit Digitel Infrasructure has also invited bids to raise 9.5 bln rupees through bonds maturing on Mar 2030.

India Infradebt plans to raise up to 5 bln rupees through a 10-year bond issue at a fixed coupon of 7.98%. Apart from these, Muthoot Microfin, Namdev Finvest, and Sundaram Finance are also in queue to raise funds through debt market on Friday. 

Merchant bankers expect several non-banking financial companies to tap the market in the coming days. 

BENCHMARK LEVELS FOR CORPORATE BONDS:

End

Edited by Tanima Banerjee 

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