The two basis points rise in yields was more to do with the rupee depreciation, says traders
The debt markets were calm with little trading taking place in the corporate bond market after Reserve Bank of India took steps to resolve the crisis at IL&FS by calling two large shareholders, Life Insurance Corporation (LIC) and State Bank of India, for a meeting on September 28. In the meantime IL&FS informed the exchanges Monday that it has again defaulted on payments on its commercial papers.
With the sale of non-core assets of IL&FS planned, it is likely that LIC and SBI will extend some liquidity support to the debt laden infrastructure financier, so the fear is off the markets.
"IL&FS Board is meeting to identify and shortlist the non-core assets will be on the block. They have plenty of assets for sale, both real estate and assets that they have developed. We will be open to helping them out if they have a credible turnaround strategy. When they sell the non-core assets. we will get back the money," said one of the shareholders of IL&FS, who is scheduled to meet RBI on Friday.
"The liquidity support to IL&FS is likely to come from its shareholders. There was also talk that Orix Corporation of Japan is also keen to infuse liquidity so that its shareholding can go up at a lower cost. But until this issue is settled, the bond market is expected to be gripped with fear," said a bond dealer.
"Though the yields on top corporate bonds remained unchanged at 8.80%, if a new issuer has to come into the market it will be at much higher costs. But no trades took place as all buyers stayed away from the market," said another bond trader. Besides Orix, all the other shareholders of IL&FS are domestic institutions such as the public sector banks.
With both the banking and the market regulators issuing a joint statement that they are closely monitoring market participants, corporate debt market was calm with hardly any deals.
"If NBFCs have any fundraising plans it would have to be done at higher prices of at least 0.30% to 0.40%. But no one is going to raise money when there is fear among the investors," Ajay Maglunia, executive vice president at Edelweiss Financial Services, said.
The yields in the government securities market went up two basis points to touch 8.12%, but the rise in yields was more to do with the rupee depreciation, traders said.
The forex market continued to be weak as oil prices continued to hammer the rupee. The currency was down 56 paise intraday, but it shaved off its losses after news hit the market about the government taking additional measures to save the local unit.
Oil prices jumped more than 2% to a four year high after Organization of Petroleum Exporting Countries declined to increase production, which saw the Brent crude price hitting its highest since November 2014 at $80.94 before easing to $80.65 a barrel.
BOND YIELDS ON THE BOIL
- 8.12%
Yields shot up to in the government securities market
- The two basis points rise in yields was more to do with the rupee depreciation, traders said
- With both the banking and the market regulators issuing a joint statement that they are closely monitoring market participants, corporate debt market was calm with hardly any deals
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"The liquidity support to IL&FS is likely to come from its shareholders. There was also talk that Orix Corporation of Japan is also keen to infuse liquidity so that its shareholding can go up at a lower cost. But until this issue is settled, the bond market is expected to be gripped with fear," said a bond dealer.
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