IDBI papers may clock lower yields

OUTLOOK/Corporate bonds

Yields on corporate bonds, especially those from the IDBI stable, have the potential to soften by 10-15 basis points this week provided yields on gilts thaw.

While prices of long-term non-statutory liquidity ratio (non-SLR) papers could go up by 25-50 paise, those of high coupon old papers could jump by almost a rupee.

The market will be buoyant this week as participants will take positions on hopes of provident funds parking a part of the estimated Rs 8,000 crore inflows by way of interest payments on the special deposit scheme (SDS) in the corporate bonds in January.

The spreads (yield differential between a corporate bond and the corresponding maturity gilt) are seen holding steady at the current levels.

The yield differential between the best rated five-year corporate bonds and the corresponding maturity gilt are seen hovering in the 60-70 basis points band.

The papers from the IDBI stable will see good action. The yield to maturity (YTM) on the AA+ rated eight per cent 2018 IDBI paper came off by 20 basis points to 6.90 per cent last week. There is potential for the YTM on this paper to soften by 15-20 basis points in the coming 10 days.

The IDBI papers have become the toast of the market ever since the Parliament passed the IDBI (Transfer of undertaking and Repeal) Bill, 2002, paving the way for its conversion into a commercial bank.

As for the primary market, the Gujarat Electricity Board is in the market with a Rs 550 crore debt issue to pay off its dues to the Gujarat Paguthan Electric Company (Rs 400 crore) and Essar Power (Rs 150 crore).

The issue has a 12 years tenor with a seven-year put call option. It carries a coupon of 8.95 per cent. The Andhra Pradesh Water Resources Development Corporation is in the market to raise Rs 350 crore with a greenshoe option of an unspecified amount.