Short, Medium Bonds To Be In Focus

Corporate bonds are expected to attract the attention of investors, especially those in the short and medium-maturity segments.

This is because, following the repo rate cut, short-term rates in the gilts market are poised for a fall, which would steepen the yield curve, automatically making the shorter papers an attractive investment option.

On the other hand, there is not much supply of short-term papers. This means corporate bonds will fill the demand gap. The underlying spread will also be attractive where investing in corporate bonds go.

In the primary market there are quite a number of issues as corporates, especially those with medium capitalisation, have been tapping the rupee debt market for raising money.

As the spread on corporate bonds with underlying government security have increased after the lowering of long-term gilt yields, there has been brisk trading in quasi sovereign papers such as oil bonds and the Unit Trust of India bonds.

Commercial papers to be in demand

Commercial paper will continue to be flavour of the week both in the primary as well as in the secondary market. In the former, most of the banks flush with liquidity are subscribing to issues of their own clients as they do not have any other investment avenue.

Corporates, on the other hand, are finding it difficult to access foreign currency borrowings and are moving to the rupee debt market as rates are quite cheap there. And if they have a good rating, they can manage to get much finer rates. Currently, papers with second-rung ratings of PR1, F1 and A1 are flooding the market.

In the secondary market, on the other hand, two factors are contributing to the growth in CP investments.

While the benchmark rates such as the market yield on 364-day treasury bill and 91-day bill are ruling high, CPs are being floated in the primary market at higher rates.

This, in turn, in being traded at a discount as good demand is pushing up prices.

Investors are also finding a decent yield differential investing in these papers.

Additionally, players last week were reshuffling the maturity profile of their portfolio to avert the volatility impact owing to the uncertainty on the interest rates front.

All these have made CPs the favourite instrument for investors such as banks and mutual funds.

Some of the CPs floated last week were Indian Glycol, Usha Martin, ACC, Sterlite Industries, Karnataka Power Company, United Phosphorus and Ceat.