Action In The Sub-Aaa Papers

Interest rates in the corporate bond market will remain soft during the week. With yields on AAA papers having fallen significantly in the recent past, the main attraction will be the AA and AA+ issues during this week. Bond dealers said the yield spread between the AAA-rated and the AA-rated instruments, which was around 35 basis points at the beginning of last week, widened to around 50 basis points by the end of it.

Participants think the yields will be realigned across ratings during this week to correct for the kinks that have been created. The yield on the benchmark 5-year AAA-rated paper is seen in a range of 7.90 per cent to eight per cent, while the yield on AA paper will be in a band of 8.15 per cent to 8.25 per cent this week.

CP yields to be stable with a downward bias

Commercial paper (CP) yields are already very low and close to the bank rate of 6.50 per cent. Dealers feel the yields are close to their bottom and will rebound once they go under the bank rate. Additionally, attention is shifting to the longer issues. Dealers think this will impact CPs . Both these factors will keep the yields on CPs in a narrow range.

Issuers to take advantage of falling yields

Corporates are likely to take the opportunity of falling yields to float new issues. However, bond dealers are not expecting issues with ratings below AA in the NCD mart. There may be a paper with a floating interest rate because, in the medium term, the refrain is that the interest rate will decline further.