Corporate Bond Issuance Surges Past Rs 1 Trillion In December

The corporate bond market witnessed a robust surge in December, with issuances surpassing the Rs 1 trillion mark. Major issuers, including PFC, REC, IRFC, NPCIL, and L&T, strategically tapped into the market, driven by favourable supply-demand dynamics, rate expectations, and optimal timing.

The prevailing yield curve environment has been a key enabler. The benchmark 10-year G-sec yield is trading at 6.75 per cent (semi-annualized), while AAA-rated PSU bonds are commanding yields of approximately 7.20 per cent (annualized). This relatively narrow spread between sovereign and high-grade corporate paper has opened a favourable issuance window. Moreover, the market appears to have already priced in a 25-bps repo rate cut expected in February 2025, providing issuers with an opportunity to lock in competitive borrowing costs.

Talking to Bizz Buzz, Venkatakrishnan Srinivasan, managing partner, Rockfort Fincap said, “Corporate issuers have been proactive in advancing their borrowing schedules to pre-empt the anticipated glut of State Development Loan (SDL) supply in Q4. Historically, the January-to-March period sees an influx of SDL auctions, which can crowd out corporate debt, widen spreads, and impact overall demand. By tapping the market in December, issuers secured tighter pricing and avoided potential over supply and liquidity constraints.”

The supply surge was met with strong demand from institutional investors, provident and pension funds, and large insurance companies - flush with December inflows from coupon accruals, redemptions, and fresh allocations - stepped up their participation in primary issuances. These investors, driven by regulatory mandates, were keen to lock in yields and meet their deployment targets ahead of the year-end, he said.

“Everyone’s looking to close their books before the year-end supply glut hits,” reflecting the sentiment that December represents a sweet spot for both issuers and investors. With yields stabilizing and spreads tightening, the market demonstrated its capacity to absorb large supply without significant disruption, he added.

Looking ahead, the market faces challenges when SDL issuances intensify and overall supply surges. This will test the depth of investor demand and the resilience of spreads. It may be noted that last year too, large supply of SDL and corporate bonds were easily accommodated by ever hungry investors. However, December’s issuance bonanza reaffirms the corporate bond market’s critical role in efficient capital mobilization, even in a dynamic and competitive landscape.