Fundraising through corporate bonds and commercial papers in October fell to its lowest level in 2023, which experts attribute to the rise in yields on these instruments and tight liquidity conditions in the banking system.
“Tight liquidity kept short-term rates elevated throughout the month and a kneejerk reaction to the RBI Governor’s remark on OMO sales led to the selloff in long bonds,” said Mataprasad Pandey, Vice President, Arete Capital Service.
According to data compiled by Prime database, corporates and banks raised Rs 34,632 crore through corporate bonds in October, and commercial papers worth Rs 74,804 crore were issued in the same month.
Ajay Manglunia, managing director and head of investment group at JM Financial, said that during this period, there was a huge volatility in US Treasuries with an upward bias on yields.
“Resulting all (Because of) this uncertainty, volumes in both the primary and secondary market drifted lower, with issuer(s) also had (having) to stop in (due to) lack of demand,” Manglunia said.
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Why yields rose
The yield on the bonds was impacted after Reserve Bank of India (RBI) Governor Shaktikanta Das said during his October monetary comments that in order to manage liquidity, the central bank may consider OMO sales.
Das added that the timing and quantum of such operations would depend on evolving liquidity conditions.
Reacting to this announcement, the yield on government securities rose 10-15 basis points. This was followed by the yield on corporate bonds.
In October, the yield on corporate bonds across maturities rose 8-18 basis points.
The yield on three-year corporate bonds, which was at 7.79 percent at the end of September, rose to 7.87 percent in mid-October, before ending at 7.81 percent at the end of October, according to Bloomberg data.
Whereas the yield on corporate bonds maturing in five years was at 7.71 percent in September, and rose to 7.89 percent mid-October before declining to 7.76 percent at the end of October.
The yield on 10-year corporate bonds also moved up to 7.78 percent at the end of October, as compared to 7.70 percent at September-end. It rose to 7.84 percent mid-October.
What does the data say?
On a monthly basis, issuance of corporate bonds fell 51.75 percent, while commercial paper issuances fell 37.77 percent.
As per the data, Small Industries Development Bank of India, National Bank for Agriculture and Rural Development, Power Grid Corp of India, Bajaj Finance, and India Infrastructure Finance Co. Ltd were the top five issuers in October.
These companies together raised around 35 percent of the total issue.
Small Industries Development Bank of India raised Rs 3,022 crore, National Bank for Agriculture and Rural Development raised Rs 2,518 crore, Power Grid Corp of India raised Rs 2,250 crore, Bajaj Finance raised Rs 2,236 crore, and India Infrastructure Finance Co. Ltd raised Rs 2,000 crore.
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Outlook
Money market experts said that issuances are likely to improve in the coming days as the chances of OMO sales are waning due to tight liquidity conditions.
“With no announcement of an OMO sale so far, we expect that things may be normal by the end of November and supply may improve with demand becoming better,” said Manglunia.
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