Companies like Jindal Saw, Tata Power and Exim Bank hit bond market as yields on govt securities fall

MUMBAI: Companies are turning to the bond market as the yields on government bonds, the pricing benchmark for companies to issue private bonds, have fallen to the lowest in a year and a half.

The yields on 10-year government bonds have fallen to 7.91% from 8.16% on December 18, the day RBI announced its mid-quarter policy review.

The biggest rally in yields has been in AAA-rated PSU, or public sector undertaking, papers, which are the most liquid in the secondary markets. Yields on the best-rated public companies' bond issues have come down from 9% in the early part of December to 8.80-8.82% now.

"There is sufficient appetite, and we have been getting queries from companies across sectors," said Shashikant Raathi, head, debt capital markets, Axis Bank. "But a lot of issuers are waiting for the interest rates to come off further, once the Reserve Bank of India cuts rates," he added.

Yields on private issues have also softened by 10-15 basis points in the past one week. The credit spread has narrowed, triggering interest of issuers.

Jindal Saw, Tata Power and Exim Bank were among those to have hit the market in the past one week. Jindal Saw raised Rs 500 crore through three-year bonds with put and call option and Tata Power raised Rs 210 crore through ten-year bonds at 9.40%.

RBI is expected to cut rates this quarter. Bankers are expecting a cut in January. Yields on government securities rallied as government assured that it will carry out additional borrowing through T-bills. This means, there will not be additional supply pressure on the bond market.

"Corporates are not rushing now since there are expectations of a further rally, if RBI indeed cuts rates," said Ajay Manglunia, head, fixed income, Edelweiss Financial Services.