Bonds having a residual maturity of four to ten years are expected to see good trading activity.
Expectation of a repo rate cut announcement by the Reserve Bank of India in its mid-term review of monetary policy, scheduled to be announced on November 3, has led to the market getting heated up.
The non-statutory liquidity ratio (non-SLR) market has already discounted a 25 basis points cut in the repo rate.
If the central bank clips the repo rate by only this quantum to 4.25 per cent, the market could turn bearish. Only a bigger rate cut, of say 50 basis points, though unlikely, could spur a rally in the market.
The difference in yields (spread) between the best rated five-year corporate bond and the corresponding maturity gilt has got compressed by 17 basis points to 57 basis points from Monday through Saturday.
New issues are unlikely in the bond market as the Securities and Exchange Board of India has asked corporates raising funds via private placement of debt to make disclosures on the lines of public issue of equity shares.
Unless the capital markets regulator resolves this contentious issue the primary market may remain depressed.
In addition to this disclosure requirement, the corporates are also waiting for a clear interest rate signal to emerge from the central bank in the forthcoming review of the monetary policy.
The commercial paper market continues to remain dull. With short-term borrowing at Mibor linked rates from banks proving cheaper, the corporates will avoid raising resources through commercial papers due to avoid paying the stiff stamp duty charges.
