Corporate bond issuances in December surged to an eight-month high of more than Rs 1 lakh crore, according to NSDL. Issuances in December increased month-on-month (m-o-m) by 35% and were highest for any month in FY19. The primary reason for high issuances was liquidity support by RBI which led to a fall in yields on government bonds and reduced the borrowing costs for corporate bonds, as corporate bonds are priced over the benchmark bonds , said a dealer. Yields on the AAA-rated corporate bonds remained largely steady, in the range of 8.45-8.60%. Yields rose 10-15 basis points in the second week of December following the surprise resignation of The Reserve Bank of India (RBI) governor Urjit Patel.
A total of 114 corporates issued bonds in December with Housing and Urban Development Corp, National Bank for Agriculture and Rural Development, JM Financial Credit Solutions being the top three issuers. Banks were reported as the biggest borrowers as they raised more than Rs 24,000 crore in the month. The central bank under the open market operations (OMO) purchased government securities worth Rs 50,000 crore in December, Rs 10,000 crore more than what it had planned earlier. As a result, coupled with a dovish RBI stance, yields on government securities fell in December. The yield on the 10-year benchmark bond fell 26 basis points during the month.
According to dealers, the possibility of a rating downgrade of two of the largest borrowers in the corporate bond market, Power Finance Corp (PFC) and Rural Electrification Corporation (REC), was the biggest scare the market faced in December. After the announcement of PFC buying the government s 52.6% stake in REC, Moody s Investors Services placed the ratings of both companies on review for a possible downgrade. Moody s said the acquisition was likely to result in weak capital ratios of both the lenders. The downgrade scare prompted a large sell-off of papers issued by REC and PFC in the secondary market. A lot of fund houses shifted their demand to AAA-rated papers of other state-owned entities such as HUDCO and NABARD.