Companies bond to long end of the curve as GSec yields fall

Companies have slowly started returning to the bond market, especially in long-tenured papers, after remaining on the sidelines for nearly two months as a spike in bond yields drove borrowing costs up.

The sharp retreat in the yield on the 10-year benchmark government bond from 6.64% to 6.47% has encouraged companies to tap the market. Government bonds are used as a benchmark to price corporate bonds. The 10-year government bond closed at 6.48% on Friday.

Aditya Birla Capital raised ₹3,400 crore through 10-year bonds at a coupon rate of 7.61% on Thursday. This is the largest, long-tenured fund raised by a private non-bank lender since June. Most issuances have been in the 1-5-year tenure bracket over the same period. On Friday, Bajaj Housing Finance raised ₹1,000 crore at 7.10% for a tenure of three years, while Manipal Hospitals raised ₹5,310 crore on September 10, at 9.03% for two years.


As of September 12, bond issuances for the month stood at ₹17,780 crore. While companies raised ₹23,309 crore in August and ₹29,473 crore in July. In June, corporate bond issuances stood at ₹42,963 crore, BSE data showed.

"The subsiding fears of extra government borrowing, combined with supportive liquidity and expectations of almost certain US Fed rate cuts, have steadied sentiment. The softening of government bond yields has also encouraged issuers to go for long tenured bonds at a time when PSUs are not yet tapping long-term bonds aggressively," said Venkatakrishnan Srinivasan, managing partner, Rockfort Fincap, a fixed-income institutional advisory firm.

Market participants were in a wait-and-watch mode in August, after raising a record about ₹4.07 lakh crore through debt in the first four months of the current financial year. Some companies, like Housing and Urban Development Corp (Hudco) and Bajaj Finance, also withdrew proposed bond sales last month amid elevated yields.

Stabilising yields and expectations of further softening of yields may prompt public sector entities to tap the bond market in the coming months.

"Currently, the bond market offers more attractive rates than banks. However, for AAA-rated companies and PSUs, borrowing costs remain broadly at par across both channels. A further decline in yields could encourage companies to increasingly tap the bond market, especially as an anticipated US Fed rate cut is expected to bring down G-sec yields," said Soumyajit Niyogi, director at India Ratings Research.

Srinivasan expects more PSUs to tap the bond market for long-tenure papers in the coming months.