Bond rush continues amid milder yields, costly loans

Mumbai: Indian companies are stepping up bond issuances following a rally in government bonds last week, as a moderation in yields has improved borrowing conditions. They raised more than ₹3,500 crore in bond sales on Wednesday, following borrowings of over ₹10,000 crore last week.

The 10-year government bond yield stabilised in the 7.17-7.21% range over the past few days, after touching a peak of 7.50% about a fortnight ago. With banks beginning to increase lending rates, borrowing via loans has become relatively expensive, prompting companies to tap the bond market for funding.

Companies tapping the market this week include Tata Capital, Axis Finance, Aditya Birla Capital, HDB Finance and Poonawala Fincorp, PNB Housing Finance and more. Government-owned lender Housing and Urban Development Corporation plans to raise ₹2,500 crore next week for 10 years.


"The 10-year yield will increase as the (US) Fed and the Reserve Bank hike rates in the next two months; therefore, there is a rush to tap into the market before December. Liquidity again is coming to the neutral zone, which can also be the reason why corporate bond rates pick up," said Venkatakrishnan Srinivasan, founder and managing partner at Rockfort Fincap, a debt advisory firm.

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The 10-year yield closed at 7.21% on Wednesday, from 7.18% a day before.

Banking system liquidity currently is a surplus of ₹1.4 lakh crore, after being at ₹2 lakh crore earlier this month, and ₹4-5 lakh crore in early October. Along with bond yields and a possible liquidity crunch, banks have also started to hike the MCLR (marginal cost of funds-based lending rate), which makes bank borrowing costlier.

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State Bank of India increased its MCLR in late October, after the RBI hiked the policy rate by 25 bps to 5.50%. SBI raised the MCLR from 8.70% to 8.85% for one year, from 8.75% to 8.90% for two years and from 8.80% to 8.95% for three years.