IDBI bonds in demand on recast buzz

Yields on FI's papers crash

The Industrial Development Bank of India (IDBI) papers have become the toast of the bond market.

Yields on the financial institution's papers have crashed by 25 to 70 basis points in the last couple of days on the back of market participants taking positions on expectation of IDBI's merger with a public sector bank/ conversion into a bank.

Overall, the bond market was buoyed by the expected inflow of Rs 8,000 crore to provident funds (PFs) on account of interest payments on the special deposit schemes.

The slide in yields has also been aided by the revision in IDBI's foreign currency outlook from negative to stable by Standard & Poor's.

Market participants, especially mutual funds and primary dealers, have started buying on hopes that PFs will deploy the fresh inflows in January in the bond market.

The rally in the FI's paper can be gauged by the fact that yield on the 8 per cent 2018 IDBI bond came off by almost 25 basis points in the last couple of days. This paper is now being dealt at 6.95 per cent.

Similarly, the 6.75 per cent 2008 bond came off by almost 70 basis points in the last two days. This paper is now being dealt at an yield of 5.90/5.95 per cent.

Today, trading in IDBI papers accounted for almost half of the total volume of Rs 250 crore in the corporate bond market.

Meanwhile, the sentiment in the government securities market has improved considerably with inflation figure turning out to be lower than what the market expectation of 5.50 per cent. The latest inflation figure is 5.38 per cent for the week ended December 4.

Yields on the long-dated securities edged lower by about three basis points today. The 6.01 per cent 2028 gilt ended the day at an yield of 6.03 per cent as against the previous close of 6.06 per cent.

Yield on the benchmark 7.27 per cent 2013 gilt finished lower at 5.147 per cent as against 5.165 per cent yesterday.