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Informist, Wednesday, Jun. 11, 2025

By Sachi Pandey

MUMBAI – Yields on corporate bonds rose further on Wednesday as mutual funds, faced with redemption pressure, continued to sell bonds in the secondary market, dealers said. Foreign institutional investors also remained active sellers, adding to the market strain and pushing yields higher.

Selling was seen across tenures, with the yield on the 10-year benchmark bond issued by the National Bank for Agriculture and Rural Development rising by 6 basis points. Yields on three- and five-year papers were up 2–4 bps. Dealers attributed this to sustained selling from mutual funds.

"The volatility triggered by the MPC (Monetary Policy Committee) meeting with the unexpected CRR (cash reserve ratio) cut unsettled the market," said a dealer at a large brokerage. "Mutual funds are aggressively selling bonds, possibly due to redemption pressures, it isn't just repositioning."

As at 1800 IST, the combined trade volume on the National Stock Exchange and BSE was INR 130.54 billion, down from INR 168.88 billion on Tuesday. State-run banks and insurance firms showed some buying interest, but volumes remained low and failed to offset the selling pressure.

Bonds issued by Mahindra and Mahindra Financial Services, Kerala Infrastructure Investment Fund Board, Small Industries Development Bank of India, Export-Import Bank of India, Bajaj Finance, NABARD, Telangana State Industrial Infrastructure Corp., Cholamandalam Investment and Finance, LIC Housing Finance, Andhra Pradesh Mineral Development Corp., State Bank of India, HDFC Bank, and REC were among the most traded.

A fund manager at a small-sized fund house said yields may stabilise in a couple of sessions but are unlikely to fall in the current market condition. "We might return to pre-policy levels in couple of days, but going below that looks difficult," he said.

The bearish sentiment in secondary market spilled over to the primary market. On Wednesday, Indian Oil Corp. withdrew its planned INR 30-billion bond issue after receiving higher-than-expected yield bids for its five-year bonds. As per the bid book accessed by Informist, the company received 93 bids amounting to INR 98.31 billion, with coupon ranging from 6.00% to 6.69%. "They were expecting finer levels post-policy, especially after the initial rally on policy day," a senior official said. "But the rally faded quickly. Though the bid book was large, the spreads weren't supportive, and the issuer backed off."

According to market participants, Indian Oil could have retained INR 30 billion at 6.51%, which was still at an attractive spread of around 50 bps to the corresponding government security, but market volatility and widespread expectations led to a second withdrawal this week after Power Finance Corp pulled its issuance on Monday for similar reasons.

On the other hand, REC successfully raised INR 49.23 billion through two separate bond issues. It garnered INR 30 billion through bonds maturing on Mar. 31, 2027 at a coupon of 6.37% and raised INR 19.23 billion at 6.70% through bonds maturing on Dec. 31, 2029. "REC also expected a slightly lower yield for the 2029 paper but had to settle for 6.70%," said a dealer familiar with the deal.

On Thursday, NABARD has invited bids to raise up to INR 60 billion through reissuance of bonds maturing Sept. 15, 2028.

UDAY BONDS

Ujjwal DISCOM Assurance Yojana bonds were not traded in the secondary market on Wednesday, as per the Reserve Bank of India's Negotiated Dealing System–Order Matching System.

BENCHMARK LEVELS FOR CORPORATE BONDS:

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Ashish Shirke

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