MUMBAI: Indian 10-year corporate bond yields rose on Thursday, mirroring federal yields, on growing speculation of a revised borrowing calendar for the current fiscal year and extra debt sale by the government that could push up borrowing costs and elbow out corporates.
The 10-year corporate bond yield ended 2 basis points higher to 9.44 percent, while the five-year yield closed up 1 basis point at 9.50 percent.
Late Monday, the finance ministry said India will sell 150 billion rupees ($2.85 billion) of bonds on Dec. 30 in an unscheduled auction to partially offset a 40 billion rupee auction cancelled last month and to fund an "emerging cash requirement".
Traders said the market got nervous following this unscheduled borrowing announcement by the government, to bridge its budget shortfall amid slowing revenue.
"This borrowing may crowd out corporate borrowing because the cascade of Indian treasury bonds sold to pay for budget deficits will drive government and corporate yields higher," a senior trader with a foreign bank said.
The benchmark 10-year bond yield ended at 8.54 percent, after touching 8.57 percent, and 6 basis points higher on the day. The 10-year yield could harden to 8.75 percent, if the borrowing is done through bonds, said Pradeep Madhav, managing director of STCI Primary Dealership.
Slowing economic growth and high interest rates are squeezing profits at Indian companies, prompting many of them to look at offshore sources to raise funds.
The spread between the 10-year corporate bond and a similar maturity government bond narrowed to 71.09 basis points from 75.20 on Wednesday.
Total volume in the corporate bond market was 33.34 billion rupees, marginally higher than Wednesday's 25.77 billion rupees.
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