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Informist, Friday, Feb. 7, 2025

By Ashna Mariam George 

MUMBAI – Notwithstanding the 25-basis-point cut in the repo rate by the Reserve Bank of India's Monetary Policy Committee as widely expected, yields on corporate bonds surged 5-6 bps in the secondary market on Friday, dealers said. The rise in yields was on account of the RBI retaining the monetary policy stance at 'neutral' and not offering any liquidity measures, they said.

The Monetary Policy Committee on Friday unanimously decided to cut the policy repo rate by 25 bps to 6.25%, while maintaining the 'neutral' stance. Market participants were hoping that the rate-setting panel would change the policy stance to 'accommodative' from 'neutral'. 

"The RBI's decision to maintain a neutral monetary policy stance, despite the rate cut, may have tempered expectations of further easing," a manager at a mid-sized brokerage firm said. "This cautious approach could have contributed to the slight increase in G-sec (government securities) yields, as investors reassessed their outlook on future interest rate movements."

The yield on the 10-year benchmark government bond rose nearly 5 bps to 6.70% compared of Friday.
 

Yields also rose as the market was disappointed that the RBI did not make any announcement to improve the liquidity in the system. "Additional liquidity could have been given, maybe a CRR (cash reserve ratio) roll-back, because the repo-cut was anyway general market consensus which he (RBI) has obliged," a senior official at a public sector bank said. 

However, some market participants said there was no need for an immediate announcement on liquidity as steps announced late last month are still being implemented. "Some prominent actions are already in force to improve the durable liquidity, which certainly eliminates the urgency of any such action," a dealer at a mid-sized insurance company said. 

Announcing the monetary policy, RBI Governor Sanjay Malhotra said the central bank will proactively take measures to ensure orderly liquidity conditions. "We will continue to monitor the evolving liquidity and financial market conditions and proactively take appropriate measures to ensure orderly liquidity conditions." 

The activity in the secondary market was subdued on Friday. "Mostly banks were on the buying and selling sides dealing in shorter tenure papers, mutual funds did not have their usual activity," a dealer at another mid-sized brokerage firm said. "Long-term investors like pension funds were in a wait-and-watch mode to see where the g-secs (government securities) will settle." 

Deals aggregating to only INR 60.64 billion were recorded on the National Stock Exchange and BSE combined, against INR 121.85 billion on Thursday. Papers issued by REC, Industrial Finance Corp. of India, National Bank For Financing Infrastructure and Development, Telangana State Industrial Infrastructure Corp., Bajaj Finance, Kerala Infrastructure Investment Fund Board, and HDB Financial Services were traded the most on exchanges.

The primary market also remained dull on Friday with no major issuer tapping the bond market. A handful of public sector entities are in line to raise funds next week through their respective bond offerings. On Monday, Housing and Urban Development Corp. has invited bids to raise up to INR 30 billion through its bonds maturing in 10 years. Small Industries Development Bank of India will also tap the market on Monday to raise up to INR 60 billion through bonds maturing on Mar. 12, 2029. 

BENCHMARK LEVELS FOR CORPORATE BONDS:

UDAY BONDS

In the secondary market, Ujwal DISCOM Assurance Yojana bonds aggregating INR 10 million were traded at a weighted average yield of 7.2595-7.3690%, data from the Reserve Bank of India's Negotiated Dealing System–Order Matching System showed on Friday.

* INR 5.00 million of Andhra Pradesh's Oct. 18, 2029 bonds were traded at 7.2595%

* INR 5.00 million of Himachal Pradesh's Feb. 28, 2027 bonds were traded at 7.3690% 

End

With inputs from Sachi Pandey

Edited by Saji George Titus

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