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Informist, Thursday, Jun. 12, 2025

By Vaishali Tyagi

MUMBAI – Yields on three- and five-year corporate bonds continued to rise on Thursday as most mutual funds and several banks sold bonds amid uncertain market sentiment, dealers said. Dealers attributed the selling pressure to the Reserve Bank of India's recent policy decisions, including the change in stance to neutral, a 100-basis-point cut in the cash reserve ratio to 3%, and the discontinuation of daily variable rate repo auctions. However, yields on 10-year corporate bonds remained broadly unchanged. 

Dealers added that the RBI's decisions have led to concerns about liquidity in the banking system, contributing to the selling pressure in the bond market. As a result, yields on corporate bonds rose further, indicating the cautious sentiment among investors. Also, fears that the Reserve Bank of India may conduct variable rate reverse repo auctions have mostly gone now, according to dealers.  

"The market is uncertain since the policy outcome last week (Friday) and it has rallied a lot (rise in yields), and investors are cutting their positions until things stabilise," a dealer at a mid-sized brokerage firm said. "We're seeing good activity in the market on both sides, but people are placing good number of selling orders, apart from this...in primary market also, a good number of issuances are happening, with some getting a good response and others being withdrawn due to market volatility."

Even though market sentiment remained uncertain, trading activity surged in the secondary market. Bond deals worth INR 145.95 billion were recorded on the National Stock Exchange and the BSE combined, up from INR 130.54 billion on Wednesday. Some mutual funds and state-owned banks were reportedly active buyers, but both were seen selling actively, too, though in low volume. A handful of pension funds also traded papers by being active on both buying and selling sides. Insurance companies remained on the sidelines, dealers said. 

Apart from selling pressure, active portfolio churning by banks and foreign institutional investors likely contributed to the rise in bond yields. Dealers said that traders are reallocating their positions in shorter-tenure bonds in the secondary market, expecting lower returns from new bond issuances in the primary market. 

"Traders will use the opportunity to take significant positions, mostly in shorter-tenure bonds in the secondary market, as new bond issuances in the primary market will offer lower returns," a dealer at a mid-sized brokerage firm said. "Existing higher-yielding papers are expected to gain traction from investors across all segments." 

Papers issued by LIC Housing Finance, Power Finance Corp., Telangana State Industrial Infrastructure Corp. Ltd., Small Industries Development Bank of India, and Sundaram Finance were the most traded on exchanges.

In the primary market, activity remained low. On Thursday, state-owned entity, National Bank for Agriculture and Rural Development, raised INR 44.03 billion at a yield of 6.68% through the reissuance of bonds maturing on Sept. 15, 2028. According to the bid book accessed by Informist, the issue received 101 bids aggregating INR 82.03 billion with yield ranging from 6.5800-6.7900%.

On Friday, state-owned entity, NTPC Ltd. will raise up to INR 40 billion through bonds maturing in 10 years. Keertana Finserv Pvt. Ltd. and Belstar Microfinance Ltd. will raise INR 1.10 billion and 1 billion through their respective bonds. 

Merchant bankers expect a rise in primary market issuances, driven by ample liquidity in the banking system. "Going forward, banks may tap the market soon once things stabilise," a dealer at another brokerage firm said. "We've noticed a few banks have received approval to raise funds via debentures, so we can expect them to enter the market soon."

The board of Canara Bank Thursday approved raising up to INR 95 billion in 2025-26 (Apr-Mar) by issuing non-convertible debentures. The bank has got approval to raise INR 35 billion through Basel-III compliant tier-I and INR 60 billion through tier-II bonds during FY26.

Market participants have also digested India's CPI inflation for May. India's CPI for May was 2.82%, lower than an Informist poll estimate of 3.00% and the lowest since February 2019. The core CPI, which excludes food and fuel items, rose to 4.2%, its highest since October 2023.

UDAY BONDS

In the secondary market, Ujwal DISCOM Assurance Yojana bonds aggregating INR 22.50 million were traded at a weighted average yield of 6.1243-6.5023%, data from the Reserve Bank of India's Negotiated Dealing System–Order Matching System showed Thursday.

* INR 15.00 million of Rajasthan's Mar. 31, 2026 and Mar. 15, 2026 bonds were dealt at a weighted average yield of 6.1243-6.1938%

* INR 7.50 million of Chhatisgarh's Mar. 28, q2031 bonds were dealt at a weighted average yield of 6.5023%

BENCHMARK LEVELS FOR CORPORATE BONDS:

End

Edited by Deepshikha Bhardwaj

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