Corporate debt issues are not expected to perform well this week even though there is enough liquidity in the system.
In fact, the papers are beginning to loose their sheen because there is hardly any supply of good quality issues.
The persistent demand for dollar-denominated loans is another dampener. This has considerably reduced outstanding floating stock in the market.
And the yields offered are not attractive enough for investors simply because they can get better returns through investment in government papers and other avenues.
This is contrary to what was happening earlier when investors seeking better returns would flock to corporate bonds irrespective of the credit risk factor.
Interestingly, bonds floated by top-rated corporates and public sector undertakings, which flooded the market a few months back, managed to raise money at very fine rates.
With a further decline in the benchmark rates, the spread between a top-rated bond and comparable government security has shrunk to 35-40 basis points.
Last week, lack of fresh demand and inter market dealing meant there was no major movement in bonds both in terms of volume and yield.
Commercial papers
Some second-rung corporates did tap the commercial paper (CP) mart to meet their short-term capital requirements.
Other firms, however, preferred dollar-denominated lines of credit since it worked out to be a cheaper option.
But despite the lack of fresh issues, the CP market has witnessed good trading due to two factors: The abundance of liquidity and uncertainty over long-term interest rates. This spurred traders to invest in short-term papers and bonds.
