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Illustration: Binay Sinha
Corporate bond issuances fell by around 22 per cent in August, despite easing yields, as issuers delayed raising funds in anticipation of the US Federal Reserve starting to cut interest rates from this month.
Corporates and financial institutions expect yields to fall further and borrowing costs to become cheaper, said market participants. The US Fed is widely expected to cut interest rates by 25 basis points (bps) in the September 17-18 meeting, marking the start of a downward interest rate cycle.
Indian companies and banks raised Rs 81,238 crore in August against Rs 1.04 trillion in July, according to data by the Prime Database.
Overseas bond issuances by corporates also took a hit during the month, with only one issuance worth Rs 100 crore by Muthoot Microfin.
“The US Federal Reserve has been vocal about cutting rates in terms of policy, and issuers who predominantly issue longer bonds in the market are waiting for some easing in yields so they don’t pay higher yields for longer tenures,” said Ajay Manglunia, managing director and head (Investment Grade Group), JM Financial. “So, knowing the fact that interest rates are bound to go down, people are slightly slow, and they are not rushing to issue bonds. Though, if we look at the levels, the yield has improved and is expected to go down further from here,” he added.
Data by the Prime Database showed that during August, the State Bank of India led the mobilisation chart with a Rs 7,500 crore mop-up, followed by REC Ltd. at Rs 6,820 crore, Bank of Baroda, and the National Bank for Agriculture and Rural Development (NABARD) at Rs 5,000 crore each. The National Bank for Financing Infrastructure & Development issued bonds worth Rs 3,911 crore over the month. These top five issuers raised around 34 per cent of the total amount raised during the month.
The yield on AAA-rated 10-year corporate bonds fell by 3 basis points during August, whereas that on 5-year bonds softened by 2 basis points. The benchmark 10-year government bond yield softened by 6.6 basis points during the same period.
Market participants said that shorter tenure bond issuances might pick up in the current month as the yield on shorter tenure bonds may soften further following rate cuts, thereby steepening the yield curve.
They expect that the coming months might see a significant increase in bank infrastructure bond issuances.
“In the second half, we are expecting a lot of issuances to come in, especially from banks, and of course, large corporations will also come and tap the market. Infrastructure bonds will be tapping the market this year, followed by Tier-II and Tier-I bonds,” said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP. “The supply will be there, but definitely the lower credit entities will struggle more,” he added.
In the first quarter of the current financial year, corporate bond issuances fell by around 56 per cent compared to the same period in the previous financial year, due to the absence of big issuers. One of the largest issuers, Power Finance Corp, issued fewer bonds over the quarter. The company had raised Rs 45,130 crore in the previous financial year.
Nabard was the largest issuer in the previous financial year, raising Rs 65,393 crore.
First Published: Sep 10 2024 | 6:56 PM IS
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