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Informist, Thursday, Jan. 9, 2025

By Vaishali Tyagi

MUMBAI – Yields on three-year corporate bonds ended slightly higher in the secondary market as mutual funds sold short-term papers, dealers said. However, yields on bonds maturing in five years and 10 years remained steady as market participants refrained from placing aggressive bets in these segments due to the absence of any domestic triggers, dealers said.

Merchant bankers said corporate bond market participants are facing pressure due to ongoing tight liquidity in the system, which has impacted inflows into mutual funds. Consequently, we are seeing selling by mutual funds, and they are mostly selling shorter tenure papers. "Tight liquidity is becoming a challenge for mutual fund houses as they are short on cash, as they (mutual funds) did not receive the expected inflows due to currency pressure," a dealer at a mid-sized brokerage firm said.

Traders expect the liquidity to remain in deficit this month unless the Reserve Bank of India intervenes with some durable tool to support liquidity. On Wednesday, the net liquidity injected by the RBI – a proxy for systemic liquidity conditions – rose to INR 1.82 trillion from INR 1.44 trillion on Tuesday.

Trade volume in the secondary market rose on Thursday, with deals aggregating to INR 95.78 billion recorded on the National Stock Exchange and BSE combined, as against INR 42.14 billion on Wednesday. In the secondary market, mutual funds and banks traded in papers maturing in shorter tenures. Insurance companies were also seen actively dealing in shorter-tenure bonds along with a few bets on longer-tenure papers, dealers said. 

"Today's market activity was concentrated on the shorter end of the curve, with heavy volumes witnessed in 2025 and 2026 papers. In contrast, trading in the 5-10 year segment was extremely limited," a dealer at a mid-sized mutual fund house said.

Papers issued by REC, HDFC Bank, Indian Railway Finance Corp., Power Finance Corp., Telangana State Industrial Infrastructure Corp., National Bank For Agriculture And Rural Development, Export-Import Bank of India, Small Industries Development Bank of India, and Shriram Finance were traded most on exchanges.

The primary market on Thursday saw issuances from a few non-banking financial companies. On Friday, the National Bank for Agriculture and Rural Development will tap the market to raise up to INR 50 billion through bonds maturing in March 2028. "Investors are eyeing NABARD paper, and they may participate in profit booking, as going ahead everybody is expecting a rate cut," the dealer quoted above said.

Merchant bankers expect primary issuances to go up further in the coming days. "The fundraising (by public sector undertakings) will continue based on the calendar of their redemptions," a fund manager at a mid-sized mutual fund said. "NBFCs (non-banking financial companies) will also raise funds but might not be aggressive unless they have funding requirements, because with rate cuts one can expect better pricing going forward."

Market participants in the debt market are awaiting direction from domestic or global events or adverse data to make more aggressive bets. In the absence of such triggers, trading activity is limited to regular requirements, with hardly any major impact on yields, they said.

UDAY BONDS

In the secondary market, Ujwal DISCOM Assurance Yojana bonds aggregating INR 283.00 million were traded at a weighted average yield of 7.3595-7.3598%, data from the Reserve Bank of India's Negotiated Dealing System–Order Matching System showed.

* INR 100.00 million of Jharkhand's March 2031 bonds were traded at 7.3595%

* INR 83.00 million of Telangana's March 2031 bonds were traded at 7.3598%

* INR 50.00 million of Punjab's March 2031 bonds were traded at 7.3595%

* INR 50.00 million of Tamil Nadu's March 2031 bonds were traded at 7.3598%

BENCHMARK LEVELS FOR CORPORATE BONDS:

End

Edited by Saji George Titus

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