Indian 10-year corporate bond yields ended steady on Friday, with a bearish near-term outlook weighed by an additional 400-billion-rupee ($7.53 billion) government borrowing announced by the Reserve Bank of India after market hours. The 10-year corporate bond yield ended unchanged at 9.44 percent, while the five-year yield closed down 2 basis points at 9.48 percent.
"I hope the government is watching because the market rates are already prohibitive to the private sector to raise new funds and this additional borrowing will make things worse," said a trader with a foreign bank. India's fiscal position has been deteriorating as economic growth slows. Expectation of an additional has been weighing on Indian markets.
The yield on the benchmark 10-year federal bond hit a three-week high on Friday as the market braced for more borrowing. It ended at 8.56 percent after touching 8.60 percent, its highest since December 7. Investments have slowed in recent quarters, as stubbornly high inflation, 13 rounds of interest rate hikes since early 2010 and rising borrowing costs bite. Companies also point fingers at a policy paralysis in New Delhi.
However, with the interest rate cycle turning, traders expect borrowing activity to increase in 2012. "I think the market will see more activity compared to 2011," said Kaustubh Kulkarni, director - capital markets, Standard Chartered Bank. "Constraints on foreign currency funding will continue, so borrowers will look domestically. The rate cycle is also turning, so borrowers will come forward to borrow." The spread between the 10-year corporate bond and a similar maturity government bond narrowed to 69.73 basis points from 71.09 on Thursday. Total volume in the corporate bond market was 20.74 billion rupees, from Thursday's 33.34 billion rupees.
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