Sidbi pulls out ₹6,000 crore 3-year bond issuance as yields harden | Finance News

With the cutoff yield being higher than what it was willing to pay and investors seeking a higher risk premium in the three-year segment, Small Industries Development Bank of India (Sidbi) on Thursday called off its ₹6,000 crore bond issuance.

The issue received 93 bids, worth ₹7,333.5 crore, 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, market participants said.

Investor pricing was understood to be 5-10 basis points higher than comparable AAA-rated bonds in the secondary market, they said.

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 prices of crude oil and United States Treasury yields.

“Bond yields have hardened particularly in the short term, which is being reflected in the market,” said a market participant.

The yield on the benchmark 10-year government bond settled at 7.12 per cent, one basis point higher than the previous close.

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 increase during the October monetary-policy meeting, market participants said.

At the same time, longer-tenor high-quality bonds continue to see demand from institutional investors, particularly those with regulatory and duration requirements.

“Whether Sidbi’s decision to withdraw 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 Reserve Bank of India’s (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 three-year segment,” said Venkatakrishnan Srinivasan, founder and managing partner, Rockfort Fincap LLP.

Issuers have also 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.

Bond issuances this month have been strong and the amount raised during September could cross ₹1 trillion, said market participants.

Sidbi’s withdrawal comes amid the 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 RBI’s liquidity measures, commentary and forward guidance.