The premium investors are demanding higher performance in 14 months to hold Indian corporate debt

The premium investors are demanding higher performance in 14 months to hold Indian corporate debt instead of government bonds as a worsening of the liquidity crisis is greater registration of credit rating upgrades.

The amount of the leading companies must pay above government yields to borrow rupees for three years rose 63 basis points this quarter to 141 on 7 December, the highest since October 2009. Similar spread in China widened 5 basis points to 112. Housing Development Finance Corp., the largest mortgage lender in India, sold three-year debt last week at 9.25 percent, the most in two years.

SBI Funds Management Pvt. and the Indian unit of Newark, New Jersey, Prudential Financial Inc. plans to buy government bonds instead of corporate securities after a record share sales and taken effective drainage money market rates with the highest among major economies of Asia. The central bank is boosting purchases of sovereign notes to help alleviate the shortage of funds, increasing the attractiveness of sovereign debt.

"The yield curve across the enterprise has shifted higher," said Navneet Munoz, who oversees $ 8,500,000,000 as chief investment officer at SBI Funds based in Mumbai, a unit of the nation's largest lender, in an interview 14 December. "The best place to be right debt market government bonds now is that the lines of the Central Bank purchases."

Debt sales slow

Central bank governor Duvvuri Subbarao Dec 09, said it was "fully aware" of the cash shortage in the banking system. The RBI bought 117 100 000 000 rupees (U.S. $ 2.6 billion) of government bonds yesterday, after 101 billion rupees last week. Subbarao today kept the benchmark interest rates unchanged after six increases this year.

Rupee debt sales companies are reducing as raise borrowing costs. India companies raised 234 billion rupees of bonds in local currency from the 01 of October, compared with an average of 518 billion rupees in the last three quarters.

Emission continues to rise toward a record year, up 22 percent in 2009 to 1.8 trillion rupees. local currency loans nearly doubled to 20.7 billion reais ($ 12.2 billion) in Brazil, while in Russia exceeded the amount of last year by 4 percent.

Infrastructure Development Finance Co., the lender India to energy projects and road, sold securities maturing in 2020 to 8.89 percent this month, compared with 8 percent notes maturing in September similar. Power Finance Corp., a lender owned Indian public services, raised funds for 10 years with a coupon of 9.05 percent this month, up from 8.78 percent in November.

Ratings

An unprecedented improvement in the debt ratings of Indian firms could not stop the second quarter increased corporate bond spreads of three years.

Crisil Ltd., India's unit of Standard & Poor's ranking rose from 253 local borrowers in the six months ended 30 September, the most since it started trading in 1987, the company said Oct. 21. Crisil rating increased Mahindra & Mahindra Ltd., the largest Indian manufacturer of sport utility vehicles, to AA + to AA on 29 November.

Swaps credit-default in the State Bank of India have fallen 23 basis points, or 0.23 percentage point this month to 156, according to data provider CMA. The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent if a government or a company fail to adhere to its debt agreements.

Prices of short-term corporate debt rose above the long-term rates this month as stock offerings of companies in 2010 drained 1.14 trillion rupees in the financial system.

"Very Strict"

"Long-term corporate bonds spreads still remain quite tight," Dhawal Dalal, head of fixed income investments in Mumbai DSP Black Rock Investment Managers SA. said in an interview Dec. 14. They are "less affected by the liquidity crisis of shorter maturities," he said.

three-year rates rose 133 basis points this year to 8.96 percent while the cost of debt for five years rose 68 points to 8.94 percent. local lenders paid an average of 817 billion rupees a day of the Reserve Bank of India in the quarter, an increase of 239 million rupees in the last three months, to meet cash shortages, the data central bank show.

The inverted yield curve

"The interest rate curve has become inverted," Dalal said the DSP Blackrock, a company manager's india world's largest asset which oversees the equivalent of $ 5.2 billion. "Liquidity may improve in the coming months, helped by the RBI bond purchases."

borrowing costs three months for companies with the highest audience of the country to more than double the 9.63 percent this year from 4.25 percent in late 2009, policy makers pushed interest rates to curb inflation has averaged 9.5 percent. commercial rates to three months in the U.S. paper are 0.35 percent, while borrowers in China are paying 3.46 percent.

Indian companies also are delaying bond sales abroad as a reference dollar borrowing costs surged to a four-month of 5.22 percent this week, according to HSBC Holdings Plc index. Rural Electrification Corp., the state-controlled lender for energy projects, put off a sale of $ 500 million through January, on "adverse market conditions," said Finance Director Hari Das Khunteta in an interview of 03 December.

overseas investment flows into India's debt has declined since the advantage of reduced performance. Foreign participation in rupiah-denominated bonds have fallen corporate and government 141 million U.S. dollars since 30 September, after rising in each of the last six quarters, according to Securities and Exchange Board of India.

Performance difference

The difference in yield between Treasuries and bonds of the Indian government in 2020, as reduced to 461 basis points higher than a decade of 567 reached Oct. 20. The yield on U.S. notes federal 10-year hit a seven-month high of 3.5 percent this week. The yield on the note of India 7.8 percent, due in 2020 has retreated 18 basis points from a maximum of 26 months of 8.22 percent reached on 6 December. It was at 8.4 percent today.

three years in India yield government bonds of 7.65 percent is still the highest among major economies, except Brazil, where similar notes maturing pay 12.59 percent. give comparable values by 3.3 percent in China and 7.14 percent in Russia. The rupee strengthened 1.4 percent this month, the second best performance among Asia's 10 most-traded currencies except the yen at 45.35 per dollar.

"The debt market is to have a sense of comfort from the actions taken to relieve the pressure on liquidity," Mahendra Jajó, head of fixed income investments in Mumbai Pramerica Asset Managers SA., The local unit of Prudential Financial, said in a Dec. 14 interview. "I'd be a buyer of government bonds and corporate bonds would not benefit much."