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PSU fund-raising drives corporate bond issuances in August

Additionally, surplus liquidity in the banking system has also dragged yields on shorter tenure papers down. Currently, liquidity in the banking system is estimated to be in a surplus of around Rs 8.41 lakh crore.

By Manish M Suvarna

Issuances of corporate bonds jumped 65% month-on-month in August as some AAA-rated state-owned companies raised a large quantum of funds. Funds raised through corporate bonds increased to Rs 49,848.25 crore in August, against Rs 30,080.86 crore in July, according to Sebi data. The fund-raising in August is the highest by companies since the start of FY22.

State-owned companies that raised funds include Power Finance Corporation, Food Corporation of India, National Highway Authority of India, Indian Railway Finance Corporation, National Bank for Agriculture and Rural Development. Of the total borrowing, 53.56% was raised by these companies.

“In the August MPC meeting, there was a dissent vote on maintaining a neutral stance. Market participants were awaiting the meeting minutes to understand the exact thought process, and hence there was lesser interest from buyers,” said Anand Nevatia, fund manager at Trust Mutual Fund.

Market participants said the appetite for fund-raising through long-term bonds was lower in the market and most issuers switched to shorter tenure papers due to firm demand from mutual funds in that segment.

“Mutual funds have been witnessing flows in schemes having maturity profile of up to 5 years. As a result, issuers have been issuing bonds in the 2-5-year maturity segment,” Nevatia said.

Since June, inflows have improved substantially into shorter-end funds such as duration fund, ultra-short-term fund, liquid fund, etc. This has also led to a fall in yields on shorter tenure papers, while longer tenure paper yield remained range bound.

Additionally, surplus liquidity in the banking system has also dragged yields on shorter tenure papers down. Currently, liquidity in the banking system is estimated to be in a surplus of around Rs 8.41 lakh crore.

In mid-August, yields on a shorter-tenure corporate bond maturing in less than 5 years eased nearly 5-10 basis points in the secondary market. Currently, the shorter tenure bond yields are ranged between 5.05% and 5.10%, and that on 10-year bond is trading at 6.88-6.95% in the secondary market.

“Yield movement has largely been flow driven. High CPI and likely normalisation of liquidity have prevented traders from aggressively building up positions,” Nevatia said.

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