PFC scraps bond sale worth ₹6,000 crore as yields spike in auction

Bank of India raises Rs 10k crore at 7.23% through 10 year infra bonds

State-owned Power Finance Corp (PFC) scrapped their scheduled bond issuances totalling ₹6,000 crore on Tuesday after investor bids in the auction came in at yields higher than what the issuers were willing to accept, said sources aware of the development.

 

This is the third time PFC has withdrawn its scheduled bond issuance in the last two months.

 

PFC had earlier withdrawn a ₹3,000-crore, three-year bond issuance, and ₹3500 crore, 15-year bond issuance on November 25 and December 10 respectively due to elevated corporate bond yields.

 

Market participants said that bids have not softened in line with expectations, underscoring the muted transmission of the recent 25-bps rate cut by the Reserve Bank of India’s Monetary Policy Committee (MPC) and persistent pressure at the shorter end of the curve.

 

“PFC did not get the levels it was expecting, as it was looking for a cut-off below 6.90 per cent for its two-year paper,” said a source aware of the development.

 

Yields on government securities have moved up by 15-16 bps since December’s MPC meeting, where the six-member committee reduced the policy repo rate by 25 bps.

 

Additionally, yields have moved up around 6 bps after minutes of the MPC were released on Friday last week. This has led to higher yield demands from investors in the primary corporate bond market.

 

The 10-year benchmark government bond yield is currently trading at 6.66 per cent, compared to 6.49 per cent on December 5, when the RBI delivered a 25 bps rate cut.

 

Meanwhile, state-owned Bank of India raised ₹10,000 crore via 10-year infrastructure bonds at 7.23 per cent.

 

BoI got better rates than PFC since it was issuing a 10-year paper while both the papers that PFC was looking to issue were shorter duration papers, which is not finding investor interest at the moment.

 

“The cut-off was broadly in line with expectations. Since this was a 10-year paper, investors such as the EPFO and insurance companies-- who prefer longer-duration instruments—participated,” said the source quoted above.