Inflation, Tax Outflows Can Lift Yields

Liquidity concerns on account of advance tax outflows coupled with inflation fears could push corporate bonds yields a tad higher this week.

With uncertainty as to when the US might launch an attack on Iraq still looming large, there is unlikely to be buying interest.

Though trading in the corporate bond market will be lacklustre, investors could resort to value buying in small quantities.

This strategy to build small positions is with a view to make the most of a rally that is likely in April, the beginning of the new financial year, on the back of softer interest rates.

The difference in yields (spread) between the best-rated five-year corporate bonds and corresponding maturity government security should hover around 50 basis points. The spread last week had come down by 20 basis points.

New floats

Companies are unlikely to venture into Bond Street to raise fresh funds. They will wait for the secondary market to rally in April so that cheap resources could be raised in the primary market.

ICICI Bank plans to raise up to Rs 800 crore through a public issue of bonds.

The issue will be open for subscription to retail and institutional investors from March 15 to March 31. The core issue size is Rs 400 crore, with a greenshoe option for an equal amount.

The issue, that offers two types of bonds, has been given highest safety ratings by both Icra and CARE.

The tax-saving bond offers an interest of 6.75 percent annually for maturities of three or five years, with a minimum investment of Rs 5,000.

Investors can also opt for deep discount bonds with a tenure of either 40 months or 64 months. The regular seven-year income bond carries an interest rate of 6.75 per cent.

Allahabad Bank is in the market with a 85 months tenor Tier-II issue (redeemable non-convertible debentures).

The bank intends to raise Rs 50 crore with a greenshoe option of another Rs 50 crore. The coupon is seven per cent, payable annually.