Spell of illiquidity continues

Outlook/ Corporate bonds

 However, till such time the market stabilises, one-to-one deals among banks, primary dealers and mutual funds will continue.

 Mutual funds are holding bonds, while banks have turned sellers to confirm to a recent RBI circular which restricts bank investment in unlisted bonds to 20 per cent of their trade portfolio.

 At present the spread between triple A-rated, five-year bonds and underlying government securities has widened from 50 bp to 80 bp.

 Bond yields have gone up following the selling spree and illiquidity in the market.

 New CP issues in the offing

 A few unlisted companies are expected to float commercial papers (CPs) as they are looking for new fund avenues following the restrictions in the bond market.

 Many unlisted companies have already tapped the market to meet their fund requirements.

 Many corporates are looking at short-term finances from banks to meet their fund requirements.