Volumes seen sliding with yield differential

OUTLOOK/ CORPORATE BONDS

The corporate bonds market is expected to see subdued activity this week due to the reduction in the yield differential with government bonds. The risk-free government bonds offer a better package (risk-yield ratio), which has led to drop in corporate bond trading volumes.

A large public sector bank is likely to stay away from the market as it feels comfortable trading in government bonds.

The yield differential does not take care of the credit risk that arises in the case of corporate bonds.

Recap: Average volumes in the corporate bond market dropped to Rs 50-60 crore per day last week. The yield on a 5-year HDFC paper was 7.35 per cent.

The yield varies from corporate to corporate within the triple A rated group as the risk variant differs. Bank of Baroda's 11.15 per cent 2008 bond was the most active on Thursday with 1.5 crore bonds traded.