Corporate bonds will need to offer better returns to compete with govt bonds: Report

Corporate bond issuers in India will have to offer higher returns on their papers as they compete with state-issued government bonds. At the same time, the increasing yields on such bonds have led to a generally decreasing amount of bond issuance, said experts as reported in the Mint.

“Corporate bond issuances have seen a drop amid rising G-sec rates. Investors are looking for higher yields, and they feel yields will go up further from here. There is also a larger quantum of state development loans (SDLs) available at higher yields. Investors, therefore, prefer a higher-yield instrument," said Ajay Manglunia, Managing Director and Head, Institutional Fixed Income, JM Financial, to Mint.

Three-year AAA-rated corporate bonds have increased their yields to 5.74 percent, a rise of 43 basis points (bps). At the same time, the five-year AAA-rated corporate bonds also have seen an increase in their yield by 36 bps to 6.35 percent. As a result, the volume of issuance of corporate bonds has been decreasing. Corporate bond issuance has dropped to Rs 5.93 trillion in 2021, from Rs 7.87 trillion in 2020.