Government securities mart shadow to subdue sentiment
Trading in corporate bonds is expected to be subdued, tracking the grooved trading expected in the government securities market.
Yields could either stabilise at their current levels or at the most inch up by around five basis points as there could be a slight liquidity squeeze on account advance tax outflows.
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The five-year benchmark corporate bond, which was last dealt at 6.42 on Friday, could trade in the 6.40-6.47 per cent yield band.
This paper was dealt at an yield of 6.4045 per cent last Monday.
The spreads on the benchmark five-year corporate bond, which represents the risk premium over a government bond of corresponding maturity, will hover around 50 basis points.
Market interest will continue to be primarily concentrated in the liquid AAA-rated five to seven-year papers.
With the Reserve Bank of India (RBI) hiking by four times the issue size of the weekly 91-day treasury bill auction to Rs 1,000 crore, the fear of a correction at the short end of the yield curve will persist, thereby inducing some selling.
By enhancing the issue size, the Reserve Bank of India is not only aiming to suck out excess liquidity from the banking system but also seeking to stem the sharp drop in yields.
Commercial papers unlikely to set trend
In the commercial paper market, companies, which tried to drive the coupon rate down last week are unlikely to be able to do so this week on account of the pressure on liquidity.
Cement and engineering giant Larsen & Toubro Ltd and ACC raised 90-day commercial papers for Rs 10 crore each at record low levels of 5.50 per cent.