Corporate bond spreads widen 30-35 basis points in July over G-Sec

Corporate bonds are driven mainly by two factors - domestic liquidity and foreign portfolio flow

Spreads between the 10-year government bonds and equivalent maturity corporate bonds widened in July as economic activities picked up pace and companies headed towards the bond market to raise resources at a time when banks still remained risk-averse in lending.

The rise in the spread is visible across rating classifications, AAA to BBB-, by 31 to 36 basis points (bps), or 0.36 percentage points, indicating that firms will now have to pay higher cost to raise money from the markets.

Bond dealers say the spreads will likely rise in the future as the Reserve Bank of India (RBI) manages the government borrowing