Secondary market yields of corporate bonds continue to decline

Corporate bond yields have been falling since September 2018

Mumbai: The secondary market yields of corporate bonds continued its fourth consecutive month-on-month decline, an indication of lower cost of borrowing for the high-rated corporates. The weighted average yield of corporate bonds across maturities and rating categories in April 2019 was 8.65%, 2 basis points lower than that in the preceding month and 33 bps lower than December 2018, according to a report by Care Ratings.

Corporate bond yields have been falling since September 2018. The weighted average yields of corporate bonds in April 2019 was 66 bps lower than that in September last year.

“The moderation in yields in the last 3 months can be attributed to the rate cuts by the RBI coupled with the higher demand for corporate bonds from insurance companies, provident funds, banks and mutual funds. The lower supply of corporate bonds has also been a factor that has pushed yields downwards,” said the report.

Corporate bond issuances in fiscal year 2018-19 was 5% lower than year ago. Fresh issuances during April 2019 stood at22,145 crore, 85% lower than the issuances in March 2019 and 27% lower than issuances in Apr 2018.

That said, corporate bonds yields had risen to a 2-year high in the first and second quarter of 2018-19, following the RBI rate hikes and liquidity crisis triggered by the distressed Infrastructure Leasing and Financial Services (IL&FS). The weighted average corporate bonds yield was 30 bps higher than the average yield of fiscal year 2017-18.