Rating boost drives rally in Indian corporate dollar bonds, squeezing spreads
The premium investors demand to hold Indian corporate dollar bonds over Treasuries with comparable maturities has shrunk by 10-14 basis points since the upgrade last Thursday, four bankers said, with investors rushing to add exposure.
The rally in bonds has spanned issuers, with the yield spread on a
State Bank of India
2029 dollar bond over the five-year U.S. Treasury narrowing to 64 basis points from 77 basis points before the upgrade. The spread on an Export-Import Bank of India 2035 bond over the 10-year Treasury tightened to 71 basis points from 83 basis points in the same period.
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"This is the tightest spread I can recall," said the Mumbai-based head of debt
capital
markets at a foreign bank, who declined to be identified since he is not authorised to speak to media.
"For banks and other lenders, it basically means they can tap funds more cheaply and possibly pass that benefit on to borrowers."
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The spread level is more critical than the outright yield at which they issue debt for banks, he added.
SBI and EXIM Bank are widely considered quasi-sovereign issuers, with credit ratings closely linked to India's sovereign rating.
State-linked issuers including EXIM and banks more broadly stand to benefit from improved access to offshore funding as the S&P rating upgrade underscores improvements in India's fiscal and macroeconomic outlook, said Maksim Zenkov, deputy head of emerging markets fixed income at financial data aggregator Cbonds.
The recent rise in domestic bond yields gives borrowers another reason to turn to dollar funding, he added.
The rally has extended beyond financial institutions. The yield spread on Reliance Industries' January 2032 dollar bond over seven-year U.S. Treasuries tightened as much as 14 basis points to 63 basis points- the slimmest margin since the bond first sold in January 2022.
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