Long-Tenor Papers Expected To Be In Demand

With very few primary issues and limited availability of good paper, corporate bonds are expected to see a good rally on the back of abundant liquidity and positive sentiment fuelled by the European Central Bank rate cut. All long tenor papers of 9-10 year maturity are likely to be traded heavily.

Last week, Housing Development Finance Corporation came out with a 5-year redeemable NCD (non-convertible debenture) with 5.82 per cent coupon to raise Rs 200 crore.

The coupon on the triple A paper worked out to a spread of 42 basis points over comparable 5-year government security. State owned Kerala Power Finance Corporation (KPFC) privately placed seven-year paper to raise Rs 150 crore with a greenshoe option of another Rs 150 crore. The paper carried a coupon of 10.25 per cent.

 

There was rally in corporate bonds last week with UTI, IRFC and PFC bonds witnessing good interest. Buying interest also increased following bond buyback plans of major corporates, market players said.

Spread between 7- year AAA corporate paper with the underlying government security is expected to compress to 35- 40 basis points this week as against 45-50 basis points last week.

CPs seen dull

Commercial papers are not expected to witness much trading as the short term requirements of corporates are still being met by dollar loans which work out cheaper to rupee funds.

There were few issues last week but most of them were privately placed with banks and mutual funds. Moreover, corporates prefer placing Mibor linked debentures than commercial paper.

GE Countrywide Consumer Financial Services raised Rs 10 crore by placing P1+ rated nine-month CPs at 5.50 per cent with a mutual fund. Associated Cement Companies mopped up Rs 35 crore at 5.06 per cent by placing 90-day CPs.