Corporate bond issuances rise to 5-month high in December as rates ease

Issuances stood at Rs 9.67 lakh crore in 2023, of which on three instances it crossed the Rs 1 lakh crore mark.

Fund raising through corporate bonds rose to a five-month high in December on account of a clutch of factors, said experts.

These include a fall in interest rates on bonds, quarter-end demand for funds, increased cost of bank borrowings and stability in market conditions.

According to Prime database, a source of data on all capital market offerings, banks and companies issued corporate bonds worth Rs 98,327 crore in December, as compared to Rs 98,139 crore in the previous month. Fund raising in December was the highest since June 2023, when entities raised Rs 1.14 lakh crore.

“Corporates who held back on issuances now find themselves needing to achieve a 25 percent issuance target through debt instruments. Additionally, the increased cost of bank borrowings has contributed to a surge in issuance,” said Ajay Manglunia, Managing Director and Head of Investment Group at JM Financial.

Further, considering the positive cues from the US market and yield coming down in both markets, companies may intend to refinance the existing debt or issue new debt at lower costs, said Umesh Kumar Tulsyan, Managing Director of Sovereign Global Markets, a New Delhi-based fund house.

Issuances stood at Rs 9.67 lakh crore in 2023, of which on three instances it crossed the Rs 1 lakh crore mark. In March, issuances stood at Rs 1.17 lakh crore, Rs 1.04 lakh crore in May, and Rs 1.14 lakh crore in June.

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Yield movement

In December, yield on corporate bonds eased around 10 basis points (Bps) tracking the easing yield on government securities and expectation of easing monetary policy, experts said.

One basis point is one hundredth of a percentage point.

Yield on three-year corporate bonds, which were trading in the range of 7.85-7.90 percent in November, eased to 7.78-7.80 percent in December, and the five-year bond yield fell to 7.70-7.74 percent, from 7.80-7.84 percent.

Similarly, yield on 10-year corporate bonds eased to 7.62-7.65 percent in December, from 7.70-7.75 percent.

This downward movement on corporate bonds was seen after the 9 bps fall in yield on government securities, especially the 10-year benchmark bond.

Tulsyan said the yield on corporate bonds followed the G-sec yield and global economy.

Indian benchmark bond 10-year 7.18 percent 2033 yield eased to 7.1754 percent by December-end, from 7.2803 percent in November.

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Outlook

Money market experts expect issuances to increase in the coming months as systematic liquidity remains tight.

“Issuances may remain at elevated levels as systemic liquidity remains tight,” Manglunia said.

Adding to this, Tulsyan said institutions might be looking to ensure they have sufficient capital at the end of the financial year to feed their businesses and maintain a healthy balance sheet.