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Bond yields down, but only for top-rated companies

“There is a paradox in the bond market,” said Pratapsingh Nathani, Beacon Trusteeship.

, ET Bureau|
Dec 05, 2019, 08.03 AM IST
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Bond market executives say easy liquidity, lower interest rates and investor risk aversion have benefited the highest rated companies.
Mumbai: There has been a slow but clear improvement in debt market liquidity over the past six months as investors are shedding their inhibitions and coming back to invest. However, the benefit of the lower yields is still restricted to the highest rated companies, indicating that the investment climate is still not back to normal.

Bond market executives say easy liquidity, lower interest rates and investor risk aversion have benefited the highest rated companies. Data from Prime Database show that yields for the highest rated companies which raise most of the money from debt market, have fallen by as much as 100 basis points in the past six months. One basis point is 0.01 percentage point.

For instance, Rs 99,204 crore out of the Rs 1.52 lakh crore raised in March 2019, the last month of fiscal 2019, was at yields ranging from 8 per cent to 9 per cent. This picture has changed in October with Rs 30,587 crore out of the Rs 44,099 crore being raised at yield ranging from 7 per cent to 8 per cent.

“Yields have come down to a large extent, but mostly for public sector bonds and a handful of private sector companies. Liquidity in the banking system has also improved substantially this fiscal and so there is money, but it is chasing only the highly rated companies with good management and identifiable promoter groups,” said Siddharth Shah, head treasury at STCI Primary Dealership.

Liquidity in the banking system which was at a deficit in the last fiscal has improved considerably this fiscal. The excess liquidity shot up to Rs 3.10 lakh crore, the highest since September 3, 2017, has helped cool down yields. But it is chasing only the best rated, or quasi sovereign paper.

“There is a paradox in the bond market,” said Pratapsingh Nathani, chairman, Beacon Trusteeship. “Top-rated companies are getting money at super fine rates. Loan market is not offering such differential. That is why lower rated companies are tapping loans rather than bonds.”

For a top-rated company, the spread, or differential between bond and loan market, is now about 50-70 basis points compared with 70-100 basis points at the beginning of the year. So, such companies can save funding costs by tapping the bond market.

National Highways Authority of India’s (NHAI) 10-year papers are now yielding around 7.50 per cent, compared with 8.30-8.40 per cent in January. PFC 10-year paper (sub-debt) is now yielding about 7.90 per cent now against 8.70-8.80 per cent in January. Among the private sector companies, HDFC, Reliance Industries, Britannia, Baja Finance and Tata Group companies are the ones that have benefitted.

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