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Informist, Wednesday, Nov. 6, 2024

By Sachi Pandey

MUMBAI – Yields on the secondary market of corporate bonds held steady on Wednesday as Donald Trump winning the US Presidential election failed to lend firm triggers to the market, dealers said. "Corporate bond market is quiet. There was a slight hardening in gilts (government securities) in the morning as market was speculating news from all over the world, but corporate bonds saw minimal activity with yields hardly moving 1-2 basis points," a dealer at a mid-sized brokerage firm said.

Government bond yields remained stable after wildly fluctuating in a 6-basis-point band during a volatile trading session. The 10-year benchmark 7.10%, 2034 bond closed at 6.83% Wednesday, unchanged from Tuesday. 

On Wednesday, trade volume in the secondary market fell sharply, with deals worth only INR 42.17 billion being recorded on the National Stock Exchange and BSE combined, against INR 87.29 billion on Tuesday. Papers issued by REC, HDFC Bank, LIC Housing Finance, Indian Renewable Energy Development, National Bank For Agriculture And Rural Development, Mahindra And Mahindra Financial Services, Shriram Finance, Sundaram Home Finance, and Keertana Finserv were traded the most on exchanges. 

Trump is set to become the second US president to secure a non-consecutive second term. With Republicans in control of Congress, Trump's policies are anticipated to increase the fiscal deficit and inflation, likely pushing up US yields. Some traders expect a Republican sweep to drive the 10-year US Treasury yield up to 4.70%, following the morning's four-month high of 4.47% during Indian market hours. 

"If Kamala Harris had won, the market would have moved lower significantly by 10-15 basis points as there are certain things she would have worked on, such as inflation. But now, with Trump winning, I think the yields will go higher in coming days," a vice president of debt capital markets at a large-sized brokerage firm said. 

However, market participants do not expect significant movement in corporate bonds from the election outcome. Instead, attention is now on the US Federal Reserve's interest rate decision, scheduled to be announced on Thursday.

The Fed is expected to cut rates for the second time this year, following its surprise jumbo cut in September. The CME FedWatch tool forecasts a 25-basis-point cut, which would lower the federal funds rate to 4.5-4.75% from 4.75-5.00% now. "If the rate cut is within the expected line, the market will barely react. But if they surprise us again, then markets might go crazy," a dealer at a mid-sized mutual fund said. 

In the primary market of corporate bonds, REC Ltd. raised INR 59.01 billion through two bonds of different maturities. REC set a coupon of 7.09% on its bonds maturing on Nov. 30, 2039, and accepted bids aggregating to INR 30 billion. The issue was fully subscribed. On another issuance of bonds maturing on Apr. 30, 2030, the company accepted bids aggregating to INR 29.01 billion and set a coupon of 7.34%. "Levels were a lot better than expected for longer tenure, we expected it to range between 7.15-7.18%, but the investors were very very aggressive on bidding. For shorter tenure, the levels were 2-3 bps higher than expected," a dealer from a mid-sized brokerage firm quoted above said. "There is very good demand for longer tenure papers, they usually get better levels than expected, especially PSUs (public sector companies)." 

The November 2039 bond saw strong demand from insurance companies, particularly Life Insurance Corporation and Employees Provident Fund Organisation, while April 2030 paper attracted mutual funds, dealers said.

Citicorp Finance Ltd. raised INR 5 billion through bonds maturing on Dec. 9, 2026. The bonds were said to be in demand from qualified institutional buyers. 

On Thursday, Kotak Mahindra Prime Ltd. plans to raise up to INR 5 billion through two short-term bonds. Shriram Finance will also seek bids to raise up to INR 3 billion through bonds maturing on Jul 20, 2027. 

According to sources, several public sector companies and banks are also exploring market rates for potential fundraising through corporate bonds.

No Ujjwal DISCOM Assurance Yojana bonds were traded in the secondary market on Wednesday, according to the Reserve Bank of India's Negotiated Dealing System–Order Matching System.

BENCHMARK LEVELS FOR CORPORATE BONDS:

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Edited by Akul Nishant Akhoury

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