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Indian companies could borrow cheap at home as bond yields soften

Yields on corporate bonds across tenors have softened 15 basis points to as much as 100 basis points, fuelled by a rally in yields on government bonds.

, ET Bureau|
Apr 22, 2013, 04.04 AM IST
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MUMBAI: Indian companies may now be able to borrow cheaper at home as yields on corporate bonds across tenors have softened by over a percentage point from March this year.

Yields on corporate bonds across tenors have softened 15 basis points to as much as 100 basis points, fuelled by a rally in yields on government bonds. One basis point is one hundredth of a percentage point.

“Generally, there’s a lull in the primary markets in April-May but the ones (issuers) who are coming to the market can get money at yields of 15-20 basis points cheaper from levels seen in March,” said Shashikant Raathi, head of debt capital markets, Axis Bank.

Ten-year corporate bonds are trading at 8.61%, almost 43 basis points lower from the yields in November 2012. The yields on 10-year government bonds last week touched near three-year low of 7.78% as inflation data surprised on the down side, with headline inflation coming off to threeyear low of 5.96% in March.

Yields on bonds issued by best-rated non-banking finance companies are currently trading below 9.5% against 10% in March. Recently, EXIM Bank raised 10-year bonds to 8.5% while LIC Housing Finance raised 10-year bonds to 8.90%.

According to experts, there may be some more steam left in the rally of yields on corporate bonds. “During the course of the year, if commodity prices continue their slide, and inflation comes around to settle at 5% or below, the possibility of rate cuts by RBI will be pronounced,” said a dealer from a private bond brokerage firm, who didn’t want to be named.

“Ten-year papers issued by public sector undertaking companies could trade well below 8.40%, which are currently trading at 8.50-8.65%,” he added.

Rates on three-month certificate of deposits, shortterm instruments issued by banks to raise shortterm money, softened to 7.9% on April 5 from 9.5% on March 3.
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