Mumbai: Yields on corporate bonds across maturities fell by a sharp 10 basis points, to its lowest level in more than a year on Monday, tracking the movement in the yield on the 10-year benchmark gilt, which slumped due to buying by foreign portfolio investors, dealers said. The yield on the 10-year benchmark gilt settled at 7.16 pc, its lowest level since April 5, 2018 and down 6 basis points from Friday, due to buying by foreign investors following the recent strength in the rupee and a decline in crude oil prices. The domestic currency has gained more than 1 pc against the US dollar since May 20, as a landslide victory for the incumbent Bharatiya Janata Party-led National Democratic Alliance at the Centre seen ensuring continuity in policy decisions.
As a result, the yield on the 10-year National Bank for Agriculture and Rural Development–considered as the market benchmark–moved in the range of 7.55-7.60 pc, lower than 7.65-7.70 pc on Friday. Life insurance companies and provident funds bought papers issued by NABARD, Indian Railway Finance Corp, Food Corp of India, and REC maturing in 2029. In the shorter maturity segment, general insurers and fund houses bought bonds issued by NABARD, Power Finance Corp, Power Grid Corp of India and L&T Finance, among others. However, though yields fell, most investors refrained from placing large bets, due to expectations of the rally continuing after the Reserve Bank of India’s monetary policy meeting on Jun 3-6, which is likely to encourage more issuers to tap the bond market, increasing primary supply of corporate bonds.
“Market believes that the current yields are not here to stay. There’s an anticipation of another rate cut in June by the RBI, which means the rally may continue,” a senior official at a mid-sized brokerage firm said. The market widely expects primary supply largely from large state-owned companies and only select few AAA-rated non-bank lenders because despite the fall in yields, overall borrowing costs for non-bank finance companies continue to be high. Further, the draft norms issued by the central bank on liquidity risk management are only seen adding to their woes due to higher capital requirements. On Friday, the RBI issued a draft that said non-banking finance companies will have to maintain a liquidity coverage buffer, comprising high quality liquid assets that can be monetised in the event of a liquidity crisis.
