Corporate borrowing to turn costly.
The yield on government bonds continued to harden for a second day reflecting the concerns over huge government borrowing plans and trading positions of the dealers ahead of the open market operation (OMO) purchases.
Dealers said, “About Rs 45,000 crore will be borrowed from the market by the government before March. The market has almost exhausted its strength and the trend is bearish. There is also ambiguity over the extra Rs 46,000 crore, which the government was planning to raise without visiting the market.”
The new benchmark paper (6.05 per cent GS 2019) today closed at Rs 99.30, below its face value of Rs 100. The yield on the paper at the end of the trading session was 6.14 per cent as against 6.02 per cent yesterday. The volume was Rs 1,235 crore, according to data from the Negotiated Dealing System.
In the case of most traded paper (8.24 per cent GS 2018), the price movement between high and low was Rs 1.45. The yield touched a high of 6.57 per cent but softened to close at 6.48 per cent (Rs 112), registering trading volumes of Rs 4,130 crore.
A bond dealer said, “It is beneficial for the players to hold 8.24 2018 paper in the portfolio. The chances of the Reserve Bank of India buying this paper in OMO are more as it may not want to buy freshly issued paper (6.05 per cent 2019).” The OMO auction is to be held on February 19.
The hardening of the yields will also make corporate borrowing costly. “As an immediate effect of hardening of yields, entities such as Power Finance Corporation, which will be in the market for funds, may see a 20-30 basis points increase in the coupon rates,” said a head of primary dealership said.
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The government has indicated it would raise over Rs 3,00,000 crore in 2009-10. This is tentative programme and the figures may go up looking at the kind of economic environment (slowdown) we are in. The more stimulus packages may be in order. This may increase the quantum of funds that the government will raise from the market.”
The yield on new benchmark (6.05 GC 2019) would move up further. Similarly the 2018 paper would see rise in its yields.