With the hardening of interest rates, which has pushed up the benchmark London Interbank Bid Offer Rate, investor appetite for Asian papers seems to be waning.

As the foreign currency borrowings by Indian corporates is losing sheen, the domestic corporate bonds market may soon get a leg up.

With banks active in syndicating external commercial borrowings, the hardening of bond yields in the US have resulted in the gradual reversal of capital flows to the developed economies, dealers said.

While the 10-year US bond yields have gone up from 3.96 per cent a month back to 4.74 per cent now, the 6-month Libor has shot up from 1.02 per cent to 1.66 per cent.

Investors are more interested in issues of developed economies and are avoiding the political uncertainty in the Asian economies, said a dealer.

Indian as well as other Asian papers are facing illiquidity in trading and this is leading to hardening of spreads over Libor. Among others, ICICI bank that had raised its bonds overseas at 105 basis points (bps) over Libor is currently trading at 150 bps over Libor.

Similarly, National Thermal Power Corporation that had issued bonds at around 207 bps over Libor is at present is ruling at a spread over Libor at 230-240 bps over Libor.

With spreads over Libor going up, the overall pricing of the issues -- inclusive of withholding tax -- is firming up. This has prompted major Indian corporates to turn to domestic market for raising finance.

Leading the pack is Tata Motors and Raymonds. They are understood to be in the process of raising five-year and 10-year bonds with floating rates benchmarked to one-year government security.

Dealers also said that the widening of spreads have put the other projects in the pipeline in a limbo.

But this does not affect Indian papers alone. The Hong Kong-based Hutchinson, which raised bonds in eurobond market at 200 bps over the US treasury bonds are now trading at a spreads of 240 bps over Libor.

Similar widening of spreads have also been witnessed in case of major euro bond issuers like Industrial Bank of Korea, Republic of Philippines and Korea Development Bank.