Outlook : Corporate Bonds

Corporate bond yields sailing south

Yields on corporate bonds are expected to spiral southward this week too. The five-year Mumbai inter-bank offer rate is at 7.20 per cent now compared with 8.30 per cent around a couple of months go. In contrast, yields on bonds haven't fallen as much -- only from 7.60 per cent to 7.20 per cent.

...renewed vigour in AA papers

The spreads on AAA papers are likely to drop by another 10 basis points. There could be more trading in AA papers as banks seek avenues to deploy their excess liquidity.

Convergence

The spreads between yields on government securities and on corporate bonds will continue to decline this week too, as has been happening for some time now. They could narrow down to 100 basis points this week, compared with 110 basis point in the last week. According to dealers it could settle around 90 basis points in the near future.

Small, sporadic issues

Yields on commercial paper are also seen going down a bit. However, in the primary market, interest rates are unlikely to go below the 6 per cent mark. There are no major issues hitting the market this week except for some floats worth Rs 30 to Rs 50 crore each. Corporates have been borrowing mainly for refinancing their earlier loans on a continuous basis. According to the dealers, issuances are likely to be driven by the need to spread out the borrowing requirements through the year. But since no one wants to take a firm call on interest rates -- and thereby bunch the entire requirement to one point -- they will enter the market with every dip in yields.