Lacklustre Trend To Persist

Corporate bonds will continue to be lacklustre during the week given the uncertain interest rate climate.

The hike in US treasury yields and the 7.5 per cent discount floor announced by the central bank for the gilt buyback have pulled down long-tenor gilt prices.

The buyback on Saturday received a poor response from banks and institutions as the central bank received 131 offers amounting to Rs 14,434 crore against the targeted Rs 1,00,438 crore.

Although the gilt buyback is cash neutral, the yields on long-term bonds are expected to go up as floating stock of these bonds increase after low-coupon high-tenor bonds are switched with the banks.

The Power Grid Corporation will however hit the market to raise Rs 700 crore. The issue, which comprises strips ranging from 1 to 12 years, will carry an interest rate of 6.10 per cent.

Last week, there were few trades in corporate bonds with Unit Trust of India and oil bonds leading the pack. Volumes were not high as most trades in governments securities remained flat.

On some days there was brisk trading in corporate bonds with investors wanting to cash in on the yield differential.

As the outlook on interest rates remained uncertain amid an appreciating dollar, some investors liquidated their positions.

Dry run to continue

The market continues to be sluggish with fewer issues. Compared with long-term rates, which are perceived to have bottomed out, short-term interest rates are relatively higher. This is affecting the rates at which primary issuers want to tap the market.

In fact, as per the weekly statistical supplement of the Reserve Bank of India, commercial paper issuances have been consistently going down since April.

For the period ended June 30, 2003, new issues have come down to 539 compared with 1,231 for the same period last year.