India Corporate Bonds
Ylds fall after MPC changes stance to 'neutral'
This story was originally published at 21:26 IST on 9 October 2024
Register to read our real-time news.Informist, Wednesday, Oct. 9, 2024
By Vaishali Tyagi and Ashna Mariam George
MUMBAI – Following a shift in the Monetary Policy Committee’s stance to 'neutral', yields on corporate bonds fell 2-3 basis points across tenures in the secondary market with interest rate cuts appearing imminent in the near term, dealers said.
"The market moved proactively today (Wednesday) after the monetary policy outcome and yields were down across tenures," a senior official at a large-sized mutual fund house said. "Traders were a little unprepared for the shift in stance. Traders had priced in a hold on rates, which was a united call. However, a change in stance suggests the MPC is open to easing but not significantly, and today's bond yield drop reflects this."
The Reserve Bank of India's six-member rate-setting panel voted unanimously to change the stance to neutral, after having kept it at 'withdrawal of accomodation' for over two years. While some traders had expected this, others had hoped for stronger signs of policy easing.
In an Informist Poll, all 30 respondents expected the committee to leave the repo rate unchanged at 6.50%. An overwhelming majority of the respondents also expected the committee to continue with the "withdrawal of accommodation" stance.
Banks were the most active in the secondary market Wednesday, with their activity concentrated mostly in the shorter segments of the curve, while insurance companies and mutual funds were active on both the selling and buying sides in longer-tenure papers, according to a dealer at a mid-sized brokerage. Volumes were slightly higher with deals aggregating to INR 134.99 billion being recorded on the National Stock Exchange and BSE combined, compared with INR 119.04 billion Tuesday.
Paper issued by the National Bank for Agriculture and Rural Development, REC Ltd., Power Finance Corp. Ltd., Small Industries Development Bank of India, LIC Housing Finance, Punjab National Bank, Bharti Telecom Ltd., and Muthoot Finance Ltd. were traded the most on exchanges.
In the primary market, Aditya Birla Finance Ltd. raised INR 16.07 billion through two bonds of different maturities, a company official told Informist. The company set a yield of 7.9042% on its bond maturing Oct. 9, 2034, and accepted bids aggregating to INR 15 billion. Separately, the non-banking finance company set a yield of 7.95% on the reissuance of its zero-coupon bond maturing Jun. 11, 2027, and accepted bids aggregating to INR 1.07 billion.
On Thursday, Aethon Developers Pvt. Ltd. plans to raise INR 4.45 billion through unsecured bonds maturing on Apr. 14, 2027. Century Textiles and Industries Ltd. will also tap the market Thursday to raise INR 1 billion through reissuance of its unsecured bond maturing on Aug. 30, 2029.
Merchant bankers said that although the change in the central bank's policy stance signalled that rate cuts were on the horizon, its steadfast focus on meeting the inflation target suggests that the rate-cut cycle may be shallow. Still, the prospect of rate cuts may give some impetus to government bonds, which in turn may soften corporate bond yields.
"The MPC outcome can be seen as a precursor to a potential rate cut in December," a chief investment officer at a mid-sized mutual fund house said. "If the data points are good, we can expect a 20-25 bps rate cut in December. The sooner, the better."
With the rate-setting panel's change of stance, the market will watch even more closely domestic and global macroeconomic developments for further hints, dealers said. Most merchant bankers still remain divided on the rate-cut quantum.
UDAY BONDS
No Ujjwal DISCOM Assurance Yojana bonds were traded in the secondary market Wednesday, according to the Reserve Bank of India's Negotiated Dealing System–Order Matching System.
BENCHMARK LEVELS FOR CORPORATE BONDS:
TENURE | WEDNESDAY | TUESDAY |
Three-year | 7.46-7.48% | 7.52-7.55% |
Five-year | 7.33-7.36% | 7.36-7.39% |
10-year | 7.20-7.24% | 7.26-7.27% |
End
Edited by Rajeev Pai
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