Corporate bond trading up 3-fold

Falling rates, subdued equity markets make these instruments attractive.

Higher interest rates and lower volatility pushed up the trading volume of corporate bonds three-fold to Rs 1,60,254 crore during the first half of the financial year ended September 2009, as against Rs 50,655 crore during the corresponding period of the previous year.

According to the Securities and Exchange Board of India (Sebi) data, the trading volume has picked up from September last year, when the credit crisis began and banks became averse to lending.
 

UP AND ABOVE Corporate bonds traded (Rs crore)
	2008	2009
April	10,072.97	31,593.38
May	10,055.58	30,169.83
June	10,163.58	18,867.98
July	6,536.13	27,614.33
August	4,249.55	24,993.01
September	9,577.41	27,016.45
Total	50,655.22	160,254.98
Note: Traded on BSE,NSE and FIMMDA Source : Sebi

From over 58,000 trades in the first six months of 2008-09, the trading volumes went up to over 1,81,000 during April-September 2010.

“The investors’ risk appetite has moved from government securities to corporate bonds. Yields and spread were higher. Also, the volatility in corporate bonds is much lower,” said Srinivasa Raghvan, IDBI Gilts’ head of treasury.

During the first half of 2009-10, the spread between the 10-year gilt and the 10-year corporate bond was 175 basis points, while the interest rate on corporate bonds was around 9 per cent as against the 7 per cent return that government securities were giving.

At the same time, the volatility in corporate bonds has been 8.25-8.75 per cent while volatility in G-secs was 6.75-7.51 per cent.

However, what makes the corporate bond market more attractive is the falling interest rate scenario and subdued activity in the equity market.

The issuances by companies, however, have not gone up during the period. Both the Reserve Bank of India (RBI) and Sebi have been working on reviving the corporate bond market to enable companies to raise funds cheaply in the domestic market itself.

Bankers say RBI, which is working on allowing repobility of corporate bonds, may announce the guidelines for this during the mid-term review of the monetary policy on October 27.

Similarly, Sebi is working on formulating a road map to bring over-the-counter (OTC) transactions in corporate bonds under clearing entities such as banks, Stock Holding Corporation of India (SHCIL) and Clearing Corporation of India (CCIL). RBI has also allowed clearing houses of exchanges to have a transitory pooling account facility with the central bank and do settlement on a real-time basis.

The subscribers to corporate bonds are mainly mutual funds, insurance companies and pension funds.