Handful Of Aaas Set To Entice

Trading interest will be seen only in few triple A papers this week. Interestingly, illiquid and low-rated papers have found the fancy of provident funds, which are rushing to ensure guaranteed returns. However, dealers feel the lack of quality issues have distorted the yield curve.

For the same maturity and triple A rating, the spread has shrunk for some bonds, while it remains wide for others.

Therefore the spread between corporate bonds and government securities of comparable maturity does not reflect the fundamentals of the market. Trading continues to be in select counters such as the Unit Trust of India bonds (issued by the Government of India) and oil bonds, while activity in other papers are dependent on the price rally in the government securities. Moreover, there has been a spurt in privately placed papers which take time to enter the secondary debt market.

 

Aggressive efforts on the part of some foreign and private sector banks contribute to the spurt in private placement, whereas they find it difficult to offload it in the secondary market. This is because corporates that opt for private placement usually raise the money at very fine rates, which, yield-wise work out to be unattractive for the investors in the secondary market.

In fact most of the foreign banks or their respective primary dealer arms have booked losses or less growth in profit on account of trading in non-statutory liquidity ratio securities. Therefore, yields in private placements in the primary market have ceased to be a correct reflection of the actual rate at which even a triple A corporate could raise funds.

Commercial papers

Commercial papers remained lacklustre partly due to lack of credit demand and availability of foreign currency loan at cheaper rate as an alternative.

As on June 15, commercial paper issued by the companies drastically reduced to RS 668 crore as against Rs 1,031 crore reported during May 31.

However the rate of interest in the primary market has come down to 5-8 per cent as against 5-9.88 per cent in May. Most of the issues in the primary market are reported to be rollovers of earlier issues.