The corporate bonds market is likely to be lacklustre even as buying demand is expected from mutual funds.
The spread between five-year, AAA-rated paper and corresponding government security, which is at present ruling around 77-80 basis points, is expected to shrink this week.
A clutch of new issues are in the pipeline, but the issuers are adopting a wait and watch tack as the interest rate scenario is not clear and long-term rates have gone up after the unloading rampage of last week.
The rates are expected to rule rangebound at least till the monetary and credit policy announcements are made. Last week, the Rural Electrification Corporation tapped the market with a book-built issue.
The Indian Iron and Steel Company Ltd hit the road to raise Rs 150 crore backed by a unconditional sovereign guarantee and thus a AAA (SO) rating by CARE.
ING Vysya Bank raised Rs 200 crore through Tier-II bonds to meet the costs of business expansion and planned to step up its field level recovery campaign for bad debts.
While the number of very long-term issues are few, floats with a maturity of at least one year have cropped up in good numbers.
This is because issuers want to enjoy funds for a slightly longer period than a commercial paper, especially when the one-year rate is just a few basis points over the short-term rate. Additionally, Mibor-linked short-term non-convertible bonds (NCDs) are not enticing the investors.
Commercial paper
Commercial paper issuances are expected to come up in large numbers with Mibor-linked NCDs losing favour.
Last week, immediate fund requirements to meet advance tax payments had forced some corporates to borrow 91-day money at even 50 basis points above Libor when the market rate is at 5-10 basis points below Mibor.
Some of the companies that ventured to raise short-term resources were Power Finance Corporation, ACC, Larsen & Toubro, Sterlite Industries, Infrastructure Development Finance Corporation and Sundaram Finance.
Participants say issuers will tap the market after September, which marks the end of the second quarter of the fiscal, and also after the redemption of RIB.
These will afford them sufficient clues on the long term outlook on liquidity and rates.
