Trading in the corporate bonds market saw a spike this week, offering some relief to liquidity-hungry mutual funds that are facing redemption pressure in their debt funds. Daily trade volume has exceeded ₹10,000 crore in the three days to April 29, 15% more than the daily average turnover in April, the National Stock Exchange shows.
On April 28, ₹13,762 crore worth of bonds were traded, the highest in the month. The supply side is being pushed by mutual funds, trying to raise money by selling bonds as they face massive redemption pressures, especially in their credit risk funds after Franklin Templeton Mutual Fund decided to shut down six of its debt schemes.
Mint reported on April 29 that panicked investors have pulled almost ₹9,000 crore out of credit risk funds in just three days since the Franklin Templeton fiasco.
Assets under management (AUM) of credit risk funds dropped 19% in the three days to April 29, according to data compiled by Pulse Labs, a mutual funds data provider. That compares with the ₹5,569 crore of outflows, or 10% of the total assets under management, in the whole of March, which typically sees higher redemptions because of year-end sales by companies.
Banks flush with capital from the central bank have emerged as big buyers in the secondary market. “It’s the TLTRO (targeted long-term repo operation) money that is available with banks that is driving the volumes in the corporate bond market. Banks are buying papers from the market and other traders. Mutual funds are selling papers to meet redemptions or to increase cash in schemes after the Franklin Templeton news,” said Ajay Manglunia, head, institutional fixed income at JM Financial.
Under TLTRO, banks are required to deploy at least half of the corpus into the secondary market. The central bank had announced a total of ₹1 lakh crore under the targeted long-term repo operation scheme.
“Banks with surplus liquidity have already deployed a major portion in primary issues. We witnessed large participation in the secondary market as well,” said Swati Singh, executive director and head, fixed income at Avendus Wealth Management.
According to Gaurav Awasthi, senior partner at IIFL Wealth Management, the secondary market bond purchases by banks is an integral part of the central bank’s efforts to stabilise the credit markets.
