Improved buying trend on the cards

Outlook: Corporate bonds

Traders expect some buying in corporate bonds in the coming sessions as their spreads over government securities look attractive currently.

According to them, there is room for the spreads to compress by around five to 10 basis points. The spread on the benchmark five-year bond over a gilt of same maturity stands at 79 basis points at present.

For the week ended April 10, the inflation rate remained unchanged at 4.4 per cent, which led to some correction in the bond market.

Yields across tenors also rose following the Reserve Bank of India deputy governor Rakesh Mohan's comments hinting that that an upward revision in interest rates in the United States could impact the monetary policy back home.

However, traders do not expect a sharp rise in bond yields due to surplus cash in the banking system and limited supply of fresh corporate paper.

Moreover, top-rated companies were looking to tap the offshore debt markets for raising cheap funds.

A dealer with a private bank said trading will largely be at the short end of the yield curve with demand seen for 2005-2007 bonds from mutual funds.

This is so since mutual funds are clocking good inflows into their liquid and short-term schemes, said a dealer with a private bank.

The yield on the benchmark five-year bond ended last week around 5.53 per cent. Mutual funds and banks were active participants, and they were instrumental in the rise in traded volumes, which averaged Rs 200 crore last week.

Sparks in the CP mart

Corporates are expected to issue commercial paper (CP) to meet their short-term capital requirements. Some of the corporates who tapped the market last week were GE Capital Services Ltd, Bhushan Steel Ltd and Gammon India Ltd.

GE Capital Services Ltd raised Rs 30 crore by placing eight-month commercial paper (CP) at 4.60 per cent with mutual funds, said a dealer with a public sector bank.

Bhushan Steel Ltd raised Rs 10 crore by placing 90-day commercial paper (CP) at 5.15 percent with a state-run bank. Gammon India Ltd raised Rs 20 crore by placing 90-day commercial papers (CP) at 4.75 per cent.