Fundraising through corporate bonds decline in October, shows data

Fundraising through corporate bonds fell in October due to the rising cost of borrowing through these instruments, market participants said. Moreover, investors refrained from placing large bets in the corporate bond market due to uncertainty and have been turning towards the government bond market as the latter is more liquid in nature.

According to data from the Prime database, companies and banks raised Rs 23,797 crore as of October 24, compared to Rs 72,941 crore in September.

"This month we have seen significant volatility in bond prices across the globe. US treasuries hit a 16-year high; the 10-year treasury touched 5.00, while we saw similar volatility and rise in bond yields in domestic markets too. With a rise in yields, we will see a drop in corporate bond issuance and see a rise in the issuance of money market instruments. Corporates are postponing their fundraising activities, hoping that the geopolitical situation will cool down in a couple of months," Vinay Pai, head of fixed income at Equirus Capital, said.

The yield on the 10-year benchmark US Treasury bond rose to 5.02 per cent on Monday, the highest since July 2007. The ongoing Israel-Hamas conflict has added to global uncertainties, particularly regarding energy prices. The concerns over inflation spiking again due to higher energy prices are currently outweighing safe-haven demand.

"Investors' appetite has gone down due to uncertainty. They are either sitting on cash or they are reluctant to put in money. The government bond market is relatively easy to enter and exit, whereas the corporate bond market is still facing illiquidity," Ajay Manglunia, managing director at JM Financial, said.

In October, the yield on corporate bonds rose nearly 10-15 basis points across maturities. The National Bank for Agriculture and Rural Development (NABARD) raised Rs 2,518 crore through bonds maturing in three years and two months on Thursday, out of a total issue size of Rs 5,000 crore, at 7.83 per cent. The bonds issued by NABARD are considered benchmarks in the corporate bond market.

Last month, the state-run company raised Rs 1,041 crore through its social impact bond, with a five-year maturity, at a coupon of 7.63 per cent.

Meanwhile, the volume in the government bond market continues to be concentrated in longer-tenure papers as traders have been betting on most-traded bonds due to tight liquidity and uncertainty around open market operations (OMO) sales by the Reserve Bank of India.