Debt fund flows to rise in 2023, 2-to-3 year corp bonds most lucrative: ABSL MF

Indian government and corporate bond yields have been on an upswing through this year as the Reserve Bank of India went on a rate hiking spree. The spreads between the two are also expected to widen as corporate bond issues, which were limited through most part of this year, start to pick up.

“The general preference remains for corporate bonds over sovereign bonds due to better yields,” said A. Balasubramanian, managing director and chief executive officer of the fund.

Corporate bond yields may see a 15-20 basis points (bps) uptick from the next quarter as companies boost borrowings to fund their capital expenditure, he noted.

Balasubramanian expects inflows to debt schemes in 2023 to be two to three times higher than last year, while interest in equity schemes remain muted.

On Friday, AA+-rated shadow bank Cholamandalam Investment and Finance raised funds issuing 3-year bonds at 8.30%. AAA-rated LIC Housing Finance will issue over 3-year bonds at 7.74% yield later in the day, and Kotak Mahindra Prime 3-year funds at 7.80% on Tuesday.

Meanwhile, the yields on government bonds with similar tenor remained in the 6.90%-7.10% band.

“Corporate bond yields of two- to three-years are very attractive … Five-year and 10-year bond yield spreads need to go up for risk-reward to become favourable to investors,” Balasubramanian said.

The five-year 7.38% 2027 government bond yield was at 7.18%, while the 10-year benchmark was at 7.30%, as against the AAA-rated Reuters benchmark corporate bond yields of state-run companies in 7.50%-7.55% band.

The next two-three months could see quick movement of funds to corporate bonds and lower credit papers, he said, noting that the best time to enter the debt market is when interest rates stabilise as the central bank takes a prolonged pause after a final 25 bps hike in key lending rate in February. (Reporting by Dharamraj Dhutia; Editing by Swati Bhat and Dhanya Ann Thoppil)

This story has been published from a wire agency feed without modifications to the text.