Corporate bond issuances seen rising post-September

The second half of the fiscal is expected to see more corporate bond issuances.

The market expects yields on corporate bonds to have fallen 20-25 basis points from current levels by end-September, due to which the cost of borrowing for firms will come down.

Yields on ‘AAA’-rated 10-year and 5-year corporate bonds are currently in the 9.30-9.35% range.

Going by issue arrangers, the Reserve Bank of India is expected to take a pause after hiking rates one last time at its July 26 monetary policy review meeting. Should this happen, the yields will start coming off.

“When yields start falling, issuers are initially in a wait-and-watch mode, expecting some stabilisation.

Post-September, corporate bond issuances will pick up,” said Ramesh Kumar, senior vice president (debt markets), Asit C Mehta Investment Intermediates.

Some see the decline in yields setting in this month.

“The yield on the ‘AAA’-rated 10-year corporate bond will fall by 10-15 basis points by the end of July. Gradually, we will see corporate bond issuances picking up. Firms will wait for further fall in yields. The 10-year corporate bond may touch 9-9.15% before September unless crude spirals. Those were the levels even three months back,” said Ajay Manglunia, senior vice-president, Edelweiss Securities.   

According to Securities and Exchange Board of India data, the amount raised by firms in the first quarter (April-June) of this fiscal dropped 16% to Rs51,258.37 crore compared with the first quarter of the last fiscal. However, in June, the amount raised by firms rose 40% to Rs19,021.67 crore compared with the previous month. This was because corporate bond yields fell in June after touching a peak.

“The ‘AAA’ rated 10-year corporate bond yield used to be 9.80% in early June. It corrected from the peak,” said Manglunia.

A fall in yields is also expected to happen in shorter tenures. “With the ‘AAA’ rated 10-year corporate bond yield falling, we can expect a fall even in the ‘AAA’ rated 5-year corporate bond yield. It may fall below 9% by September,” said Arvind Konar, head - fixed income, Almondz Global Securities.