Spread between G-secs, corporate bonds widens

Rush to raise funds in February despite high premiums, tight liquidity

- ANUPREKSHA JAIN

AS THE LIQUIDITY in the banking system remains in the deficit of around ₹2 lakh crore, the spread between government bonds (G-secs) and corporate bonds has widened to 50 basis points from 25 basis points. This has raised the cost of raising funds for banks and other financial institutions in the debt market, experts said.

Especially, banks and non-banking financial companies (NBFCs) with lower credit ratings have been asked to pay higher premiums compared to 'AA' and above-rated financial companies.

Experts also attribute the widening gap between government and corporate bond yields to the continuous supply of corporate bonds. Usually, long-term investors like insurance companies and provident funds increase their corporate bond purchases in December and January.