SIDBI canceled the issuance of three-year bonds worth 600 billion rupees on Thursday because the set maximum yield was higher than what the issuer was prepared to pay. Investors demanded a higher risk premium in the three-year bond segment.
According to market participants, applications for the issuance received 733.35 billion rupees across 93 bids. Meanwhile, investors offered around 7.85 percent for the base issue of 100 billion rupees and 7.97 percent for the full issue volume of 600 billion rupees.
It was noted that investor pricing was approximately 5-10 basis points higher than comparable AAA-rated Public Sector Undertaking (PSU) bonds in the secondary market.
This occurred against the backdrop of the benchmark 10-year government bond yield increasing by approximately 8 basis points over the last two trading sessions, which correlates with rising crude oil prices and US Treasury yields.
One market participant stated that 'bond yields have particularly strengthened in the short term, which is reflected in the market.'
The yield on the benchmark 10-year government bond stood at 7.12 percent, one basis point higher than the previous close. Over the last 15 days, bond yields have increased by almost 12 basis points.
Despite excess liquidity in the banking system, the three-year segment continues to carry a risk premium as the market increasingly accounts for the probability of a repo rate hike at the October monetary policy meeting, according to market participants.
At the same time, institutional investors, especially those with regulatory and maturity requirements, continue to show demand for high-quality, longer-term bonds.
Venkatkrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP, noted: 'It remains unclear whether SIDBI's decision to withdraw today will be beneficial. The market could react in any direction after October, depending not only on the rate decision but also on liquidity measures, comments, and prospective guidance from the Reserve Bank of India. For now, the market message is clear: liquidity is available, but pricing remains key, especially in the 3-year segment.'
Issuers were also aiming to utilize the bond market before the October meeting to lock in financing before any further review of interest rates and liquidity conditions. Market participants reported that September bond issuances were already strong, and the total funds raised in the month could exceed 1 trillion rupees.
SIDBI's withdrawal comes amid uncertainty regarding the rate forecast and liquidity conditions ahead of the October policy. The bond market's reaction after this policy will depend not only on the rate decision but also on liquidity measures, comments, and prospective guidance from the Reserve Bank of India.