The National Bank for Agriculture and Rural Development (Nabard) withdrew its ₹8,000 crore bond issue on Tuesday after investors demanded yields in excess of 7.60% for a five-year tenure. According to The Economic Times, the lender had planned to borrow around 7.40% - 7.45%, but faced significant market resistance at the proposed pricing levels. This withdrawal highlights palpable caution in the primary bond market, where activity picked up briefly in June but has remained muted through July and early August.
Bid book data revealed the auction fell well short of its target, with cumulative bids of about ₹7,166.5 crore across coupon levels ranging from 7.20 per cent to 7.60 per cent. As reported by The Economic Times, this left a shortfall of roughly ₹833 crore even at the widest end of the pricing band. Market participants noted that demand was particularly thin at the lower coupons that Nabard would have preferred, with barely ₹1,126.5 crore bid up to the 7.43 per cent mark. The withdrawal was one of the largest proposed issuances in more than a month, highlighting the challenging market conditions.
According to Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP, as reported by The Economic Times, the rise in yields was attributed to the large issue size and escalating West Asia crisis. He explained that investors demanded higher yields for larger allocations, making full-book execution at the desired pricing difficult. A fixed-income dealer at a brokerage firm confirmed the issue was withdrawn because levels had come in well above expectations, stating that the levels moved higher purely because of the large issue size. Investors demanded higher returns, anticipating that yields will rise due to geopolitical uncertainties and markets are watchful of the expected hawkish tone in the monetary policy scheduled on Wednesday.
Bond market participants expect issuers to hold off on large-sized offerings until after Wednesday's RBI policy decision. As reported by The Economic Times, corporate bond issuances have significantly decreased compared to the previous year, with institutions selectively deploying funds while awaiting market clarity. Elevated government bond yields, which serve as the benchmark for pricing corporate bonds, have pushed up borrowing costs, discouraging companies from tapping the bond market. The 10-year benchmark government bond yield closed at 6.81% on Tuesday, up from 6.60% at the start of the year, while the one-year marginal cost of lending rate at State Bank of India stands at 8.70%. According to Soumyajit Niyogi of India Ratings Research, yields have moved higher as markets increasingly price in risks arising from ongoing geopolitical tensions, with fixed-rate corporate bond borrowing costs turning comparable to bank funding rates.
