Outlook : Corporate Bonds

Yields may witness a correction

There will be a correction in corporate bonds yields, which have been drifting southwards during the past couple of weeks in sync with the movement in government paper yields.

Market interest may shift to papers maturing in 2009 and beyond. This will be mainly because of renewed interest from public and private sector banks.

The spreads between the yields on top-rated 5-year corporate bonds and that of government papers of comparable maturity may taper a a touch this week.

... activity could return to AAA papers

Top-rated longer-term papers will attract good trading interest from banks. Daily volumes (excluding direct deals) could average around Rs 200 crore.

Market participants will be comfortable with spreads of 100 basis points over five-year gilts.

... CP yields will nose up

Despite the surfeit of liquidity in the banking system, commercial paper (CP) yields in the secondary market will edge up a bit.

Volumes could go down in the run-up to the advance tax outflows towards mid-September.

The Mibor-linked non-convertible debenture (NCD) issues, which typically have a tenor of three to 12 months with a daily put/ call option, will attract buying interest of non-banking finance companies.

Few new issues in the pipeline

There are no major CP issues in the pipeline. Only those who need funds up to Rs 50 crore are expected to hit the Finance Street.

Corporates will tap short-term funds from nationalised banks. There will be resistance in the CP market to issues below the 6 per cent mark as the rates cannot go below the repo floor.

The corporate bond market is likely to see new issues of around Rs 300 crore. Two companies of a big corporate house are likely to hit the market with an issue of Rs 50 crore each. There will also be an issue of around Rs 50-100 crore by a major cement manaufacturer.