PSUs Flock to Debt Market : India’s corporate bond market is witnessing a sudden surge in activity, led by public sector undertakings (PSUs) such as Numaligarh Refineries, NABARD, Rashtriya Chemicals and Fertilizers, and Power Finance Corporation (PFC). After two months of subdued activity caused by elevated yields and weak market sentiment, September has brought signs of revival, with PSUs rushing to raise thousands of crores through bond issuances to meet quarter-end funding requirements.
Yield Dynamics
The 10-year AAA-rated corporate bond yield is currently trading at 7.25%, compared to 7.15% in July and 7.0% in June, as per Bloomberg data. This slight softening from recent highs is encouraging issuers to lock in funds before the MPC meeting, where policy outcomes could once again shift borrowing costs.
Read about: Financial Planner vs. Financial Advisor: What’s the Difference?
Investor Appetite Shapes Issuance
Demand Drivers
Investor demand for long-term AAA-rated PSU bonds remains robust due to their relative scarcity compared to the steady supply of government securities. This limited availability, coupled with the high credit quality of PSUs, has made them attractive for investors looking for safe yet higher-yielding instruments.
“Issuers may look to take advantage of this window ahead of the October policy amid rate cut hopes and inflation easing expectations,” said Venkatakrishnan Srinivasan, founder and managing partner at Rockfort Fincap LLP.
Investor Mix
- Mutual Funds: Demand may remain muted because of quarter-end redemption pressures.
- Banks, Pension Funds, and EPFOs: These institutions continue to provide steady demand for PSU issuances, keeping the market supported.
Srinivasan further noted that while corporate bond yields are still elevated, first-time or less frequent PSU issuers may benefit from sharper yield corrections compared to regular issuers who face stronger pricing discipline.
Quarter-End Phenomenon and Market Sentiment
The bunching of PSU issuances is largely a quarter-end phenomenon. Market participants confirm that PSUs prefer to shore up liquidity before closing books at the end of each quarter. The proximity to the October MPC meeting adds urgency, as issuers seek to finalize borrowings before any potential policy rate surprises.
“The bunching of PSU issuances we are seeing is largely a quarter-end phenomenon, as many of them shore up resources before closing. The MPC adds a layer of timing urgency, since issuers prefer to lock in demand before any potential policy impact,” said V R C Reddy, Head of Treasury, Karur Vysya Bank.
Also read: Your Insurance Is 18% Cheaper Now: GST Exemption Brings Relief to Policyholders
FAQs
1. Why are PSUs issuing bonds aggressively at the end of September?
PSUs often bunch up bond issuances at the end of each quarter to meet liquidity and funding needs before closing books. This quarter-end surge also aligns with softer yields and the upcoming RBI Monetary Policy Committee (MPC) meeting, which could impact borrowing costs.
2. How do tariffs and inflation affect bond yields and issuances?
While tariffs directly impact auto and manufacturing costs, inflation remains the key driver for bond yields. Higher inflation keeps yields elevated, making it expensive for issuers to borrow. As inflation eases, yields soften, creating windows of opportunity for PSUs to issue bonds at more favorable rates.