SIDBI withdrew its ₹6,000 crore bond issuance on Thursday as the cut-off yield was higher than what the issuer was willing to pay, with investors seeking a higher risk premium in the three-year segment. According to reports from Business Standard, the issue received ₹7,333.5 crore of bids across 93 bids, with investors quoting around 7.85 per cent for the base issue of ₹1,000 crore and 7.97 per cent for the full ₹6,000 crore issue. Investor pricing was understood to be around 5-10 basis points higher than comparable AAA-rated PSU bonds in the secondary market. Meanwhile, Sagarmala Finance Corporation Ltd (SMFCL) withdrew India's first blue bond issuance of ₹600 crore after receiving bids worth ₹525 crore at coupons ranging from 7.69 per cent to 8.44 per cent, against its plan to price the 10-year bonds below 8 per cent.
The pricing came as the yield on the benchmark 10-year government bond rose around 8 basis points over the past two trading sessions, tracking higher crude oil prices and US Treasury yields. As reported by Business Standard, the yield on the benchmark 10-year government bond settled at 7.12 per cent, 1 basis point higher than the previous close. Bond yields have hardened almost 12 basis points in the last 15 days, reflecting broader market conditions. The RBI is expected to raise rates later this year to contain oil price-driven inflation, while the central bank is also reducing liquidity in the banking system to prevent cheap loans from fuelling cost pressures after a special programme to support the rupee netted $133 billion in diaspora deposits.
Despite surplus liquidity in the banking system, the three-year segment continues to carry a risk premium as the market increasingly factors in the possibility of a repo rate hike at the October monetary policy meeting. According to market participants cited by Business Standard, longer-tenor high-quality bonds continue to see demand from institutional investors, particularly those with regulatory and duration requirements. Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP, noted that the market could react either way after the October policy, depending not only on the rate decision but also on the RBI's liquidity measures, commentary and forward guidance. "Whether SIDBI's decision to withdraw today eventually works in its favour remains to be seen. The market could react either way after the October policy, depending not only on the rate decision but also on the RBI's liquidity measures, commentary and forward guidance. For now, the message from the market is clear: liquidity is available, but pricing remains the key, particularly in the 3-year segment," he said.
Issuers have been looking to tap the bond market ahead of the October policy to lock in funding before any further repricing of interest rates and liquidity conditions. As reported by Business Standard, September bond issuances have already been strong, and the total amount raised during the month could cross ₹1 trillion. SIDBI's withdrawal comes amid uncertainty over the rate outlook and liquidity conditions ahead of the October policy. The response of the bond market after the policy will depend not only on the rate decision but also on the Reserve Bank of India's liquidity measures, commentary and forward guidance.
