Trading volumes in corp bonds picks up steam

CHENNAI: Trading volumes in corporate bonds has picked up steam. Across BSE, NSE and Fixed Income Money Market and Derivatives Association (FIMMDA), nearly Rs 1.28 lakh crore of corporate bonds were traded in the first five months (April-August 27) of the new fiscal, more than 3 times of the Rs 40,000 crore done in the same period last year.
Corporate bonds are a debt security issued by a corporation and sold to investors.The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations. Corporate bonds promise usually 1-2% higher rates than sovereign bonds based on risk levels of the security and the economic environment.
The direction of interest rates could be a factor why trading volumes have picked up. While there was a consensus view that interest rates could remain soft even 2-3 months ago, there is large section of corporate bond investors who feel interest rates might harden in near future. "There is more diversity of opinion regarding the movement of interest rates now leading to more trading of corporate bonds," said Ajay Dwivedi, director, CRISIL ratings.
In fact, such is the attraction of corporate bonds that the trading volumes from April actually account for nearly 80% of volumes logged in full 2008-09, Sebi data shows. Over the past couple of months various corporate (public and private) have accessed the fixed income market to mobilise funds at competitive rates, feel experts.
"While there has been flurry of issuance to lock in the rate at the prevailing levels, investors are also willing to invest in the present plush liquidity environment as they channelize funds to higher yielding (compared to sovereign debt) avenues," said fixed income expert Rahul Chokshi of Edelweiss Securities Limited.
Trading volumes in corporate bonds has regularly touched Rs 25,000-30,000 crore per month in the last five months with NSE and FIMMDA accounting for the bulk of the volumes. The bias for corporate bonds has mainly been in short maturing paper (less than 5-year) as the investors are in favour of curbing the duration risk in the present environment, traders pointed out.
Indian corporate bond yields rose on Friday, as sentiment was dented after cut-off yields at a federal bond auction came in higher than expected. The yield on the Reuters benchmark five-year corporate bond ended at 8.5%, its highest since March 31 and up from Thursday's close of 8.46%. The spread between the five-year corporate and government debt yield has in fact narrowed to 123.08 basis points from 127.34 basis points on Thursday.