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Business Standard
16-07-2025
- Business
- Business Standard
Corporate bonds gain favour as government securities' yields remain steady
Debt market investors are reallocating funds to shorter-tenure corporate bonds due to attractive yields, as government securities (G-Secs) yields remain steady. The yield spread between AAA-rated five-year corporate bonds and government securities of similar maturity has widened by 22 basis points since the first week of June. Since the Reserve Bank of India (RBI) cut the policy repo rate by 50 basis points on June 6, yields on government bonds have remained steady, while corporate bond yields have hardened. 'With government bond yields effectively locked in and limited capital gain potential, the richer accrual opportunities in corporate bonds make them more appealing. There is clear interest in blending portfolios that target an overall yield of around 8 per cent,' said Ajay Manglunia, executive director and head of fixed income markets at Capri Global Capital Ltd. 'To achieve that, investors are allocating across both G-Secs and corporate bonds, with the latter offering better carry given the stagnant nature of sovereign yields,' he added. Market participants noted that, given abundant liquidity in the system, demand from banks, mutual funds, and insurance companies for such bonds has surged. With limited supply of short-term G-Secs, and the government's preference for longer-term issuances, corporate bond issuers—especially in the AA/AA+ category—are stepping in to meet demand, flooding the market with short-tenure bonds. Consequently, while demand remains strong, oversupply has led issuers to offer higher yields. Of the Rs 8 trillion the government plans to borrow in the first half of this fiscal year, 75 per cent will be through bonds with tenures of 10 years and above. 'There is a huge supply of corporate bonds now. Appetite is there because of abundant liquidity in the system. Also, there is not much credit demand. Either they are putting it in the Standing Deposit Facility (SDF) or the Variable Rate Reverse Repo (VRRR). So, half of the money that is left, they are trying to put into mutual funds. That is why many mutual funds are becoming anchor investors,' said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP. The net liquidity in the banking system was in surplus by Rs 2.99 trillion on Tuesday, according to the latest data from the RBI. As long as system liquidity remains elevated, corporate bond supply—especially from private AA-rated issuers—is expected to remain robust.
Time of India
09-07-2025
- Business
- Time of India
Companies opt for direct market borrowings than bank loans
Companies are increasingly turning to commercial papers (CPs) for working capital due to lower rates compared to bank loans after policy rate cuts. CP issuances surged significantly, driven by mutual fund activity and slower rate transmission by banks. This shift has made CPs a cheaper and more flexible funding option, especially for highly-rated issuers, impacting bank lending growth. Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Money markets appear to be doing brisk business at the expense of liquidity-surplus banks, as companies raise working capital through short-term instruments that have seen rates recede more quickly than at lenders after a percentage-point cut in policy rates this bank data showed that outstanding commercial paper (CP) issues, net of redemption, rose Rs 1,06,366 crore between end-March and mid-June, compared with Rs 52,260 crore in the corresponding period last the same period, bank lending rose only Rs 70,005 crore, compared with Rs2.74 lakh crore in the corresponding period, down 74%. An increasing presence of mutual funds in the CP market has made bank financing less attractive, said experts.'Another key factor is the aggressive re-entry of mutual funds into the CP market. Bolstered by strong inflows, liquid funds and ultra-short duration funds are actively bidding for money market instruments , further driving demand and compressing yields,' said Venkatakrishnan Srinivasan, managing partner, Rockfort Fincap, a fixed-income institutional advisory firm.'The situation is amplified by the lag in rate transmission by banks, making commercial papers a cheaper and more flexible alternative to working capital loans for many issuers—especially those with high credit ratings,' he said. Interest rates on CPs ranged between 5.7-12%, down from 7-14% during the fortnight ended January 31- the fortnight prior to the first reduction in repo rate in February 2025 after a prolonged are unsecured debt instruments with tenor ranging from 7 days to one year and can be issued relatively quickly compared to availing bank loans, making them an attractive source of funding. Also, interest rate transmission is faster in money market debt instruments compared with surge in CP issuances is accompanied by a steeper fall in short-term yields relative to the benchmark 10-year paper. Yields on CPs, which are mainly issued by non-banking finance companies, have come down from 7-14% during April-June 2024 to 6-12% in April- June 2025, the RBI data to industry executives, the sharp rise in CP issuances is mainly because of the central bank's pivot to monetary easing—with the repo rate already reduced by a cumulative 100 basis points since basis point is a hundredth of a percentage addition, the central bank has frontloaded a 100-basis point cut in the Cash Reserve Ratio (CRR) in phases starting September, significantly boosting system liquidity, which is currently in surplus of more than Rs 4 lakh transmission of rates has been slower in bank marginal cost of fund-based lending rate (MCLR), which is the benchmark for corporate lending, has fallen by only 10 basis points since January, while weighted average lending rate on fresh loans has come down by 12 median MCLR stood at 8.90% in June compared to 9% before Mint Road began the rate cut cycle, while WALR has fallen to 9.20% in May from 9.32%.
Business Standard
24-06-2025
- Business
- Business Standard
Major companies to tap debt market to raise over ₹10K cr this week
Major companies, such as Andhra Pradesh Mineral Development Corporation (APMDC), Samvardhana Motherson, ICICI Bank, SMFG Credit, Muthoot Finance, and L&T Finance, are tapping the debt capital market to raise over ₹10,000 crore through bond issuances. The move comes amid volatility in the corporate bond market driven by geopolitical tensions and the aftereffects of the June monetary policy. APMDC is looking to raise around ₹5,526 crore through 10-year bonds, with bidding scheduled for Wednesday. Samvardhana Motherson is also aiming to raise up to ₹2,500 crore via 'AAA'-rated bonds on Wednesday. Aditya Birla Housing Finance is planning to raise ₹500 crore through five-year bonds, while SMFG Credit is targeting ₹660 crore. ICICI Bank, India's second-largest private-sector lender, is set to tap the market this week to raise up to ₹1,000 crore (₹500 crore base issue and ₹500 crore green shoe option) through Tier II bonds. Bidding for this issuance will take place on Thursday. On Tuesday, Poonawalla Fincorp raised ₹1,600 crore in two tranches of ₹800 crore each at a coupon of 7.70 per cent through bonds maturing in 66 months. The Indian bond market has been slightly volatile following the RBI's June monetary policy due to the change in stance and slightly hawkish commentary on future rate cuts. developments in West Asia have also weighed on market sentiment. As a result, yields on 10-year AAA-rated public-sector undertaking bonds exceeded the 7 per cent threshold after a gap of three months. REC on Monday raised ₹2,865 crore through 10-year bonds at a coupon rate of 7.06 per cent. 'Bond market has been highly volatile over the past few days, influenced by a mix of global and domestic factors. However, fresh uncertainty has emerged with the RBI's post-market announcement of a ₹1 trillion Variable Rate Reverse Repo (VRRR) auction,' said Venkatakrishnan Srinivasan, founder and managing partner, Rockfort Fincap LLP. He added that issuer activity remains concentrated in the 3–5-year maturity segment, where institutional demand has been consistently strong. Despite the growing supply in this segment, investor appetite remains strong, even as bids are now coming with slightly higher yield expectations, he further said.
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Business Standard
23-06-2025
- Business
- Business Standard
Yield on AAA-rated PSU bonds breaches 7% as long-term rates firm up
Yields on 10-year AAA-rated public sector undertaking (PSU) bonds in India's corporate bond primary market exceeded the 7 per cent threshold on Monday, after a gap of three months, as long-term rates continue to rise. Notably, REC Limited raised ₹2,865 crore through 10-year bonds at a coupon rate of 7.06 per cent. Additionally, the company secured ₹4,000 crore via 2-year bonds at a 6.60 per cent coupon rate. 'REC's 10-year issuance today saw a cut-off of 7.06 per cent confirming the firming yield trend. Despite the upward movement, limited fresh supply of 10-year bonds and sustained investor demand in REC bond have helped keep the coupon levels orderly,' said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP. Meanwhile, the yield on short term bonds -- particularly up to the 5-year segment -- have been witnessing strong demand post monetary policy review outcome earlier this month. These instruments are typically bought for interest income rather than capital gains. A combination of monetary policy easing, abundant liquidity infusion in the system, and Cash Reserve Ratio (CRR) cut by the Reserve Bank of India (RBI) in the recent monetary policy review weighed on the short term bond yields, said dealers. 'There is demand for short term bonds after the policy, but the rates on papers of tenure 10 year and above are rising, and they are expected to harden further. The 10-year government bond yield touched 6.40 per cent today (Monday), which eventually reflects in the corporate bond primary market,' said a dealer at a state-owned bank. The yield spread between 3-year government bond and benchmark 10-year bond has increased by more than three-fold to 48 basis points, against 15 bps at the start of the financial year, whereas, in the current calendar year the yield spread has widened by twelve times. Since January, the RBI has injected ₹9.5 trillion of durable liquidity into the banking system. This infusion helped shift liquidity conditions from a sustained deficit since mid-December to a surplus by end of March. The transition was reflected in the muted demand for daily VRR auctions and elevated SDF balances, which averaged ₹2.0 trillion during April–May. Of the total liquidity injection, ₹5.2 trillion came through open market purchases (including secondary market purchases), while long term VRR auctions and USD/INR buy-sell swaps added ₹2.1 trillion and ₹2.2 trillion, respectively. The net liquidity in the banking system was in a surplus of ₹2.41 trillion as of Sunday, latest data by the RBI showed. The domestic rate setting panel cut the banks' cash reserve ratio (CRR) by 100 basis points to 3 per cent of their net demand and time liabilities in four tranches starting September. The reduction in CRR is expected to infuse ₹2.5 trillion of primary liquidity in the banking system by the end of November.
Time of India
19-06-2025
- Business
- Time of India
India's Larsen & Toubro may explore another ESG bond issue after debut attracts premium, spokesperson says
Indian infrastructure major Larsen & Toubro could raise funds through environmental, social and governance bonds again, after its first-ever issuance of the notes was sold at a premium, a company spokesperson said on Wednesday. In the debut bond sale under India's newly-introduced ESG debt securities framework, L&T on Wednesday raised 5 billion rupees ($58 million) through three-year notes at a coupon of 6.35%. This compares with 6.45%-6.50% secondary market yields on the company's near three-year bonds, according to merchant bankers. Bonds Corner Powered By India's Larsen & Toubro may explore another ESG bond issue after debut attracts premium, spokesperson says In the debut bond sale under India's newly-introduced ESG debt securities framework, L&T on Wednesday raised 5 billion rupees ($58 million) through three-year notes at a coupon of 6.35%. Indian bond yields marginally higher; focus on oil, debt supply Sebi eases norms for foreign investors who only buy government bonds Lending yields set to shrink in FY26 as banks play it safe Jiraaf launches India's first Bond Analyser to decode fixed-income investing Browse all Bonds News with "We remain open to raising more funds through ESG-linked issuances...," the spokesperson told Reuters. "Should the need arise, and if market conditions are conducive, we may consider the ESG debt market again." The notes, rated AAA by Crisil, saw banks and mutual funds as investors, the spokesperson said. Live Events SBI Mutual Fund was the anchor investor and bought at least 750 million rupees of the bonds, bankers said. The fund house did not reply to a Reuters email seeking comment. "We were able to achieve beneficial pricing on this ESG bond issuance compared to our plain vanilla bonds. The strong investor interest in credible ESG-labelled instruments helped us price the bond attractively," the L&T spokesperson said. The deal signals that credible ESG-labelled issuances can secure premium pricing purely on the strength of transparency and investor confidence, said Venkatakrishnan Srinivasan, founder and managing partner at debt advisory firm Rockfort Fincap. "Going ahead, this could open the gates for more corporates to access the ESG bond market, and issuers with strong sustainability credentials may benefit from favourable pricing." ETMarkets WhatsApp channel )
