Mumbai: Bereft of the extra funds sloshing about within the financial system during the Covid pandemic, top-rated companies are now paying more to raise money through bond markets, with the pricing of issues by even the likes of Reliance Industries reflecting the divergence between sovereign and corporate debt.
Over the past year-and-a-half, as the Reserve Bank of India has raised interest rates and progressively drained the banking system of excess liquidity, the spreads between government bond (Gsec) yields and AAA-rated corporate bond yields have shot up.
The rate of interest that companies pay to investors to raise money through bonds is determined by yields on Gsecs. A higher spread implies a rise in borrowing costs for companies vis-a-vis what the government pays to raise funds.
While the spreads for 5-year and 10-year AAA corporate bonds are still lower than the historical average of 43 basis points and 50 basis points, respectively, the gap has increased significantly from just 1 bps and 6 bps at the end of April 2022, data provided to ET by CRISIL Market Intelligence and Analytics showed. One basis point equals 0.01%.
At the time, the RBI had not yet started raising interest rates, while liquidity was in a surplus of more than ₹5 lakh crore.
