Business Standard

Low-Coupon Papers Seen In Demand

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BUSINESS STANDARD

Corporate bonds prices are likely to remain rangebound this week as most players who had bought long-term high-coupon papers are holding on to the portfolio to earn a better return.

When the market sees renewed buying interest after the advance tax outflows, low-coupon medium-term papers should be in demand.

Traders are likely to look for a high capital appreciation, which is more likely in low-coupon bonds.

However, with the increase in yields on government securities, the interest rate differential between corporate bonds and the underlying gilts has come down, which is a disincentive for investors.

Last week saw heavy selling in corporate bonds, in line with the trend in gilts. Most sellers were mutual funds and banks. However, medium term four-year maturity bonds witnessed a lot of demand towards the end of the week.

 

Interest in these low-coupon short-term papers came mainly from traders who were eyeing a quick appreciation in portfolios before the end of the quarter. Punjab National Bank tapped the market last week to raise around Rs 500 crore for ten years.

Dealers said the oversupply of corporate bonds with the same maturity but with different yields is posing problems in discovering the right price and in creating demand for these papers.

Commercial papers

Primary issues have come down of late and this is likely to continue this week as well for various reasons. Most corporates have already raised dollar loans to meet their fund requirements. Internal accruals have also been good enough.

Secondly, with the repo rate coming down, Mibor linked non convertible debentures have lost fancy as their yields are unattractive.

Moreover, there is not much difference between yields on 91-day treasury bills and that on one or two-year gilts.

Issuers thus prefer to come out with longer term papers rather than go for 91- day papers.

The secondary trading in the commercial paper has virtually gone down as investors are holding on to the papers till maturity.

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First Published: Sep 15 2003 | 12:00 AM IST

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