Corporate bond fundraising hit a 10-month low in August
In August 2023, fundraising through corporate bonds fell to a 10-month low as yields on these instruments increased due to high inflation. Companies and banks raised Rs. 55,140 crore in August 2023, down from Rs. 55,924 crore in August 2022. Experts attribute the decline to volatility and rising rates, which deterred issuers from exploring the market.
Inflation-driven yield spike surprises market
The yield on corporate bonds saw an upward movement in August, particularly after the release of the Consumer Price Index (CPI) inflation print, which surprised the market. Yield on three-year and five-year corporate bonds increased to 7.65-7.75% by the end of August, up from 7.55-7.65% at the beginning of the month. Similarly, the yield on 10-year corporate bonds rose to 7.62% from 7.52%.
Corporate bond issuances have declined since July 2023
According to data from Prime Database, issuances of corporate bonds were down 16.6% on a monthly basis and 1.4% on a yearly basis. Issuances have been falling since July 2023, after heavy issuances worth Rs. 1.21 lakh crore were made in June. Since the start of the calendar year, issuances have surpassed the Rs. 1 lakh crore mark three times in March, May, and June.
Anticipated H2 FY24 recovery with easing inflation
Money market dealers anticipate an increase in corporate bond issuances in the coming months due to moderating inflation and a likely pick-up in private investment. Experts suggest that more issuances may occur in H2 FY24 as yields gradually moderate, driven by easing inflation and an expected increase in private investment during the second half of the fiscal year. Corporate bond yields are also likely to follow government securities yields in the coming months.
