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Informist, Monday, Jun. 9, 2025

By Sachi Pandey

MUMBAI – Reversing the sharp fall seen on Friday after the Reserve Bank of India surprised markets with a larger-than-expected policy easing, corporate bond yields surged on Monday, dealers said. According to dealers, the market remained extremely volatile, with yields on three- and five-year papers rising by 8–12 basis points and the 10-year yield inching up 2 bps.

The sharp swings follow the RBI's announcement on Friday of a 50-bps cut in the policy repo rate to 5.50%, along with a 100-bps reduction in the Cash Reserve Ratio to 3% of banks' net demand and time liabilities. The CRR cut will be implemented in four equal tranches, starting from September and continuing into November and is expected to infuse INR 2.5 trillion into the banking system. 

"The market is very volatile after what happened on Friday. Yields were down, then up, then down again, and now they're up. It's difficult to say where it goes next," said a dealer at a large brokerage. "Multiple measures were announced in less than an hour, so the market doesn't know what and where to go."

Dealers expect the choppy trend in yields to continue over the next few sessions as the market gradually adjusts to the RBI's unexpected easing. Some believe that once the liquidity from the CRR cuts starts flowing in, short-term yields could stabilise.

The sudden shift in liquidity outlook and rate expectations left traders scrambling to reassess positions. On Monday, trading volumes on the National Stock Exchange and BSE combined were at INR 161.1 billion, compared to INR 183.82 billion on Friday. Dealers said participants from all major segments—mutual funds, insurers, banks, and corporates—were active on both the buying and selling sides.

Among the most traded papers were those issued by Kerala Infrastructure Investment Fund Board, Small Industries Development Bank of India, India Infradebt, IIFL Finance, Bajaj Finance, National Bank for Agriculture and Rural Development, Power Finance Corp, Tata Capital, HDB Financial Services, NTPC, and Muthoot Fincorp.

Meanwhile, in the primary market of corporate bonds, Power Finance Corp. was the centre of attention. The public sector lender withdrew its planned zero-coupon bond offering for the second time this year. PFC had planned to raise up to INR 20 billion through bonds maturing in July 2035, but weak demand and aggressive yield expectations forced the company to pull the issue. "Yields were too high, and even then, the issue wasn't fully subscribed," a dealer at a mid-sized brokerage firm said. The issue received just 28 bids worth INR 14.7 billion at a yield range of 6.20–7.02%.

"There are not many investors willing to buy zero-coupon bonds right now, and the few that are quoting are asking for very high yields. PFC wasn't ready to accept those levels," said a fund manager at a mid-sized mutual fund. "After what happened with REC's zero-coupon bond, investors are cautious." Market participants pointed to REC's zero-coupon bond issued in September at a yield of 6.2483%, which has failed to deliver meaningful gains for investors so far. 

This wasn't the first time PFC backed out of such a plan. In April, the company attempted a similar issuance but withdrew due to a lack of demand at acceptable pricing.

However, despite the setback in the zero-coupon space, PFC managed to raise funds through two plain vanilla bond issues on Monday. The company set a coupon of 6.27% for bonds maturing on July 15, 2027, and accepted bids totalling INR 25 billion. The issue was fully subscribed. In the other issuance, PFC set a coupon of 6.59% for bonds maturing on October 15, 2030, raising INR 19.8 billion against a similar structure of base and greenshoe sizes. "The demand for shorter-term bonds like the two-year paper was strong, but the five-year segment saw less interest. The levels quoted for the 5-year were higher too," the dealer at a mid-sized brokerage firm quoted above said.

Investor focus is now shifting to Tuesday's primary market lineup, where multiple companies are set to raise funds. Muthoot Finance has invited bids to raise up to INR 18 billion through two bonds of different maturities. Other issuers in the queue include Suruchi Properties, Credila Financial Services, Keertana Finserv, and Aditya Birla Sun Life Insurance.

UDAY BONDS

In the secondary market, Uttar Pradesh's Jun. 2027, and Jun. 2028 Ujwal DISCOM Assurance Yojana bonds aggregating INR 11.60 million were traded at a weighted average yield of 6.0103-6.0844%%, data from the RBI's Negotiated Dealing System–Order Matching System showed Monday.

BENCHMARK LEVELS FOR CORPORATE BONDS:

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Edited by Saji George Titus

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