Outlook : Corporate Bonds

Yields may fall, tracking gilts...

The yields on corporate bonds are expected to go down this week, tracing government securities. While the yields on AAA papers may droop by 8-12 basis points, those on AA and AA+ papers could decline by 3-5 and 7-10 basis points, respectively. Trading in AA papers is not foreseen.

... and could even plunge past sovereign paper

Spreads between the yields on corporate bonds and government securities are expected to decline. Last week, the yields on government securities fell close to their all-time lows. This week, too, they are likely to slip, and may even lag behind corporate paper yields.

... CP yields may bottom out at 5.75%

Commercial paper yields are falling continuously. Bond dealers expect them to continue declining this week too. Participants, however, feel the fall will be halted once the yields hit 5.75 per cent, as below this level banks will turn to the repo market. The expected range for three-month commercial paper is 5.75 per cent to 6 per cent.

... number of issues will be low

There may not be any fresh issues this week, feel bond dealers. They reason that corporates have mopped up the funds required in the second quarter. A few experiments are not ruled out, however. Low interest rates make it the best time for corporates to come out with new issues. This has been the sentiment for the last couple of weeks. This week, too, a few more merchant bankers and issuers may follow the suit.