Heightened risk aversion keeps bond issuances muted in Q1: ICRA

At the same time, government's gross market borrowings during FY2022 (including back to back loans) is expected to remain at Rs 13.7 lakh crore, similar to the last year.

Net of redemptions of Rs 2.6 lakh crore during FY2022 (Rs 2.4 lakh crore in FY2021), net borrowings are budgeted to be marginally lower by 2.8 per cent at Rs 11 lakh crore in FY2022 (Rs 11.4 lakh crore in FY2021).

ICRA projects net state development loans (SDLs) in FY2022 at Rs 6.3 lakh crore, a modest 3.5 per cent lower than the net SDL issuance of Rs 6.5 lakh crore in FY2021.

"Based on SDL redemption of Rs 2.1 lakh crore in FY2022, we expect gross SDL issuance to rise by 4.9 per cent to Rs 8.4 lakh crore in FY2022 from Rs 8 lakh crore in FY2021."

The daily average one-year, three-year, five-year and 10-year AAA corporate bond yields eased to 4.18 per cent, 5.17 per cent, 5.89 per cent and 6.79 per cent respectively during Q1 FY2022 from 4.24 per cent, 5.27 per cent, 6 per cent and 6.93 per cent respectively during Q4 FY2021.

On a closing basis, the 10-year AAA corporate bond yield declined by 29 bps during Q1 FY2021 to 6.9 per cent (16 bps reduction in term to maturities (TTMs) and that for five-year AAA corporate bonds softened by 30 bps to 5.97 per cent (19 bps reduction during TTM).

Similarly, said ICRA, the yield on three-year AAA corporate bond was lower by 7 bps during Q1 FY2022 to close at 5.4 per cent (22 bps reduction during TTM).