Yields surge as Dec CPI dims RBI rate cut hope

Yields on corporate bonds were sharply higher in the secondary market on Tuesday as a surge in headline retail inflation in December dented hopes of a rate cut by the Reserve Bank of India, dealers said.

According to data released after market hours on Monday, headline inflation in December was at 7.35% against 5.54% in the previous month.

"The Reserve Bank of India had said it was looking at the headline CPI number, and with inflation above 7%, I don't think we are looking at a rate cut. We can only expect a rate cut in the second quarter of the next financial year," Sakshi Gupta, senior economist, HDFC Bank told Cogencis.

Yields on corporate bonds rose up to 10 basis points across maturities.

On Tuesday, mutual funds were active in the 2020 segment, where they bought bonds from banks and corporates. They traded papers issued mainly by Reliance Industries, Indian Railway Finance Corp, National Bank for Agriculture and Rural Development, and REC.

Insurance companies and banks were active in the 20212027 segment, where they bought papers issued by NABARD, PFC, LIC Housing Finance, and Food Corp of India.

For the second consecutive day, Relianace Capital's bonds were traded at a deep discount. Its 2.7-bln-rupee worth of bonds maturing between 2021 and 2026 were traded in a yield range of 41.83-99.99%.

On Tuesday, in the primary market, Bank of Baroda raised 20 bln rupees through the issuance of Basel IIIcompliant tier-II bonds maturing in 15 years at a coupon of 7.84%. The issue was fully subscribed due to strong demand from banks, insurers and mutual funds.

On Wednesday, Housing and Urban Development Corp has invited bids for its April 2023 bonds. HUDCO plans to raise up to 14 bln rupees through these bonds.

The National Stock Exchange on Tuesday reported deals aggregating 57.88 bln rupees, compared with 43.05 bln rupees on Monday. The BSE saw deals totalling 35.65 bln rupees against 18.25 bln rupees on Monday.