Corporates temper bond issues with yields on rise now

Mumbai: Easing in corporate borrowing costs mid-April, which encouraged a wave of bond issuance, appears to be reversing as concerns over a prolonged conflict in West Asia drive yields higher once again. Firming local yields have made issuers more cautious, with some scaling back planned bond sales after a brief period of frenetic activity.

Recent state-backed bond issuances show signs that borrowing costs may be beginning to edge higher again. SIDBI, which had planned to raise ‘6,000 crore through a three-year bond sale on Tuesday, mobilised only ‘3,025 crore at a yield of 7.61%. A week earlier, NABARD raised ‘4,250 crore against a planned ‘7,000 crore at 7.48% for a similar tenor.

Taken together, the two issuances indicate that funding costs are starting to move higher, debt market participants said.

“We saw a pickup in bond issuances after mid-April as lower yields encouraged corporates to tap the market. But borrowing costs are beginning to inch up again over the past few days,” said Venkatakrishnan Srinivasan, managing partner at Rockfort Fincap, a debt advisory firm. “So, appetite remains selective, and many are finding it difficult to raise the full amount they had initially planned.”
Yields on India’s 10-year benchmark paper slipped to around 6.86% by April 15 from as high as 7.13% early April. But they have steadily climbed again to around 6.98%, with little clarity on the direction of the West Asia war and its impact on oil prices.

Mid-March, NABARD had raised ‘7,265 crores for 3-years at 7.44%, while REC raised ‘3,000 crores for 5-years at 7.19%
The pickup in issuances mid-April also coincided with a period of ample surplus liquidity in the banking system, which boosted demand for fixed-income securities. This encouraged institutions such as banks and mutual funds to deploy funds into the debt market, and the resulting surge in demand helped compress yields, debt market participants said.