Corporate bond yields fall 5-7 bps tracking easing G-sec yields

Bond

Yields on corporate bonds fell around 5-7 basis points (bps) in the last two weeks due to easing yield on the government securities after the announcement of a buyback of securities by the Reserve Bank of India (RBI), experts said.

As per data compiled from market sources, yield on three-year corporate bonds fell around 5 bps, five-year corporate bonds fell 7 bps and 10-year corporate bonds fell around 6 bps.

“The yields have fallen due to the unexpected announcement of buyback of government securities. This buyback of Rs 40,000 crore is expected to create significant additional liquidity in the market. The same is getting reflected in lower bond yields,” said Nikhil Aggarwal, Founder & CEO, Grip Invest.

Mataprasad Pandey, Vice President, Arete Capital Service, added that corporate borrowings are generally lower in the first quarter, but this time elections are playing as an additional factor and large borrowings will prefer to wait till the election results.

“Hence muted supply has resulted in lower yields,” Pandey said.

Also read: India bond buyback signals RBI’s cash easing stance, Citi says

In the last few days yield on the government securities fell around 10-11 basis points due to easing global uncertainties. Further, the announcement of the buyback of government securities also helped yields.

On May 3, the RBI announced that the central government will buy back Rs 40,000 crore worth of government securities on May 9, 2024.

The securities offered for buyback are 6.18 percent GS 2024, 9.15 percent GS 2024 and 6.89 percent GS 2025, maturing on November 4, November 14, and January 16, the central bank said.

Also read: JPMorgan inclusion of Indian bonds to aid private credit

The yield on three-year corporate bonds traded in the range of 7.73-7.75 percent on May 8, as compared to 7.78-7.80 percent on April 19.

Similarly, yield on five-year corporate bonds fell to 7.69-7.71 percent range on May 8, as compared to the 7.76-7.78 percent range on April 19.

The yield on 10-year corporate bonds eased to 7.49-7.51 percent on May 8, as compared to 7.57-7.59 percent.

Aggarwal from Grip Invest said yields are generally expected to fall as central banks look to loosen monetary policy. “Timing is still unknown given the recent lower-than-expected new job numbers in the US.”