Bond mart to get booster dose

The government is considering a combination of wider investor base and change in tenure of bonds available for investments to revive the sluggish bond market.

Banking sources said the government may allow provident funds to invest in bonds it issues to oil marketing companies in lieu of subsidies. The oil companies are finding it hard to encash the oil bonds as there are no takers for these bonds with medium term maturities.

The government is considering changing the tenure of bond issuances as part of its borrowing programme. The bond market has been sluggish because banks are more interested in short-term bonds and insurance companies are keen on buying long- term bonds.

The sources said the government wants to increase the supply of papers with maturities which are more preferred by banks and insurance companies.

The tenures of bonds being considered are three to five years and eighteen to thirty years. There is not much appetite for medium term bonds in the present market conditions.

This is because banks and primary dealers, which are the major investors in these bonds, have started reducing the average maturity of their portfolio to check depreciation losses in a rising interest rate scenario.

With rising interest rates, oil bonds are not finding takers as it offers an yield of 7-8 per cent for 10 years when the market yield on 10-year bonds is in a range of 8.30-35 per cent.

The government is trying to match the bond issuances' tenures with the the market appetite so that its borrowing programme is in tune with the market requirements.

Last few issuances had hugely devolved on the primary dealers as banks had bid at yields with which the Reserve Bank of India (RBI) was not comfortable.