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<PN: First take edited by Saji Sir>

Informist, Tuesday, May 20, 2025

By Ashna Mariam George 

MUMBAI – Yields on corporate bonds fell marginally in the secondary market Tuesday as investors purchased papers on the expectation of a record-high surplus transfer by the Reserve Bank of India to the government, dealers said. The market expects the RBI to transfer INR 3 trillion to the government for 2024-25 (Apr-Mar). Lower-than-expected cut-off on bonds issued by the Power Finance Corp. in the primary market also dragged down yields, dealers said.

However, the fall in yields was limited in the second half of the day as some foreign portfolio investors sold papers after reports of a rise in COVID cases in India, dealers said. As of Monday, at least 257 active COVID cases have been recorded in the country, according to media reports. 

While mutual funds were major buyers, foreign institutional investors were both on the buying and selling side, dealers said. Banks and long-term investors kept to the sidelines, dealers said. Deals aggregating INR 168.34 billion were recorded on the National Stock Exchange and the BSE combined, up from INR 119.97 billion reported Monday.

Papers issued by Power Finance Corp., Telangana State Industrial Infrastructure Corp., National Bank for Agriculture and Rural Development, Small Industries Development Bank of India, and LIC Housing Finance were traded the most on exchanges.

Market participants expect the yield on three-year corporate bonds to fall as low as 6.60%-6.63% before the RBI's June policy. Tuesday, three-year bonds were quoted at a yield of 6.68%-6.70%. "We expect the buying and fall in yields to continue at least until the policy... the policy is expected to be dovish and don't see any hawkish comments coming," a dealer at a Mumbai-based mid-sized private sector bank said. 

Power Finance Corp. raised INR 49.50 billion through two bonds at lower than expected yields. The company raised INR 24.50 billion through three-year bonds maturing on Jul. 15, 2028, at a coupon of 6.61% and INR 25 billion through bonds maturing on Jul. 15, 2030, at 6.64%. "The yields were 2-3 basis points lower than expectation and the issues got more than enough demand," the dealer quoted above said. "The secondary market was quite active, especially after the PFC cut-off."

"Since yields are on the downward side (in the secondary market), no one wants longer-tenure papers... so the three-year and five-year paper saw good demand," a fixed income dealer at a mid-sized insurance company said. Last month, the power financier had scrapped two issuances worth INR 60 billion due to high yields. 

On Wednesday, the primary market is packed with issuances worth over INR 200 billion. State-owned REC has invited bids Wednesday to raise up to INR 60 billion through two bonds. The company plans to raise up to INR 30 billion through bonds maturing on Jan. 31, 2028 and INR 30 billion through over-10-year bonds maturing on Apr. 30, 2036. The coupon on the 2028 bond is seen at 6.60-6.62% and the 2036 bond at 6.88-6.91%. 

The last time the company tapped the market was on Apr. 28 when it raised INR 30 billion through bonds maturing on May 31, 2030, at a coupon of 6.87% and INR 20 billion through bonds maturing on May 31, 2035, at a coupon of 6.86%.

Aditya Birla Housing Finance, Kotak Mahindra Prime, Muthoot Finance, and Tata Capital will also tap the market Wednesday with their bond offerings. 

UDAY BONDS

In the secondary market, Ujwal DISCOM Assurance Yojana bonds aggregating to INR 38.00 million were traded at a weighted average yield of 5.9763-6.6779%, data from the Reserve Bank of India's Negotiated Dealing System–Order Matching System showed Tuesday.

* INR 24.00 million of Rajasthan's Mar. 15, 2026 and Mar. 31, 2026 bonds were dealt at a weighted average yield of 5.9763-6.3924%

* INR 7.50 million of Chhattisgarh's Mar. 28, 2031 bonds were dealt at a weighted average yield of 6.6779%

* INR 6.50 million of TamilNadu's Feb. 22, 2028, Feb. 22, 2031, and Feb. 22, 2032 bonds were dealt at a weighted average yield of 6.2991-6.5588%

BENCHMARK LEVELS FOR CORPORATE BONDS:

Edited by  Saji George Titus

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