The sharp rise in yields of government bonds on the “surprise” announcement about the extra market borrowing programme, may force Indian companies to put breaks on raising funds from the market in the near term.
Dealers said the large planned borrowing (Rs 25,000 crore) from the market drove yields higher on the 10-year benchmark. Besides, crowding out in the market, by leaving less resource for non-government borrowing, may have adverse implications for the rate at which Indian companies can raise funds. The cost of funds will be higher, at least till the rates stabilise.
Yields rose sharply by 60 basis points as banks and mutual funds turned net sellers, tracking rise in gilt yields due to an increase in government borrowing plan.
Managing Director and chief executive of ICICI Securities Primary Dealership, B Prasanna said “companies may prefer to wait to raise funds till the market for government bonds stabilise”.
The yields on 10-year paper On Wednesday touched a high of 6 per cent. The yields on government paper tend to remain at elevated levels on the back of a surge in government borrowings. There could be support for yields at 6.5-6.10 per cent level for 10-year papers for the time being, said a bond dealer with Canara Bank.
The 10-year benchmark 8.24 per cent, 2018 paper ended the day at 5.87 per cent yield to maturity as compared to 5.30 per cent yesterday.
This development may adversely impact the corporate borrowings in near term. Companies, across the sectors, had stepped up market borrowings through bonds including debentures to take advantage of the sharp fall in yields. But, they may take a pause and rework market borrowing plans, the Canara Bank official said.
Before hardening of yields in market On Wednesday, yields for corporate bonds had seen drop to 8.05-8.10 per cent level in the last few trading sessions. In yields have declined by 100-150 basis in the last two months.
Andhra Bank chairman and managing director R S Reddy said the yields may remain high for some time to come. But given the trends in the interest rate (moving southwards), the yields would fall again after some time. His bank will visit market it requires capital irrespective of the yield trend.
According to Fixed Income Money Market Derivative Association's reporting platform, around Rs 411 crore worth of bonds were traded, compared with Rs 303 crore.
Volumes are likely to stay up this week as most traders will sell corporate bonds and will invest in the auction to be held for dated securities as per the revised borrowing calendar.
Power Finance Corporation's 10-year bonds were dealt at 9.10-9.15 per cent compared with 8.30-40 per cent yesterday. Indian Railway Finance Corp's 10-year bonds were traded at 8.90-8.95 per cent compared with 8.25-8.40 per cent yesterday.
