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Informist, Wednesday, Jan. 7, 2026

By J. Navya Sruthi

MUMBAI – Yields on corporate bonds rose for the third day in a row by two to three basis points as mutual funds continued to sell, dealers said. They also said the widening spread between the 10-year gilt and state bonds also led to the selling of corporate bonds.

"Mutual funds are seen selling five-year bonds, which is why yields continued to be on higher side," a dealer at a private bank said. Overall, there is a negative trend in the market as mutual funds, insurance companies, and a few corporates are seen selling corporate bonds, which led to a rise in yields on corporate bonds across tenures. 

Although there is no redemption pressure faced by mutual funds this week, lower bond prices in the market are affecting the net asset value of the fund houses, the dealer said. "So, even before prices (of corporate bonds) fall more, they (mutual funds) are booking gains," the dealer said.    

Market participants also said tight liquidity in the system led to only a few buyers in the market. Although the net liquidity absorbed from the banking system by the Reserve Bank of India – a proxy for the liquidity surplus – was INR 801.34 billion Tuesday, higher than INR 648.12 billion Monday, dealers and fund managers said the liquidity remained tight as it is below INR 1 trillion.   

On the other hand, the spreads between 10-year gilt and state bonds have also widened. The coupon for the 10-year Tamil Nadu bond was 7.41% at the Dec. 30 state bond auction, where the spread with the benchmark gilt was 84 basis points. In 2024, the spread between then issued 10-year Tamil Nadu bond and the benchmark gilt was 33 basis points. "Investors will go state bond rather than investing in corporate bonds on better yields there," the dealer said.    

A fund manager at a domestic mutual fund house said that the selling of corporate bonds by mutual funds might continue in coming days. "We need more OMOs (open market operations auctions) or government borrowing for next fiscal or India's inclusion in Bloomberg Index. This rise in yields will continue till then as most PSUs (state-owned companies), which scrapped issuances earlier, will raise funds this (March) quarter," the fund manager said. 

NABARD, Power Finance Corp., Small Industries Development Bank of India, and Indian Railway Finance Corp. scrapped their bond issuances during November and December due to higher yields. The total of bond issuances which were scrapped was INR 395 billion. Market participants expect the central bank to conduct another INR-1-trillion OMO auction before the end of the current financial year, to support the systemic liquidity.  

Meanwhile, volume in the secondary market was INR 87.48 billion Wednesday, lower than INR 116.34 billion Tuesday on the National Stock Exchange and BSE combined. Bonds issued by Bajaj Finance, IIFL Finance, Kotak Mahindra Investments, UGRO Capital, Vivriti Capital, Earlysalary Services, Krazybee Services, Navi Finserv, Satin Finserv, IIFL Smasta Finance, Keertana Finserv, Muthoottu Mini Financiers, Sammaan Capital, Adani Enterprises, and State Bank of India were traded the most on exchanges.

Issuances totalling INR 1 billion were scheduled for Wednesday, down from INR 3.20 billion Tuesday. A total of INR 4.06 billion bond issuances are scheduled for Thursday. Tiruppur City Municipal Corp., Greater Chennai Corp., and Keertana Finserv Ltd. will raise funds on Thursday. 

UDAY BONDS

In the secondary market, one Ujwal DISCOM Assurance Yojana bond worth INR 9.60 million was traded Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching system.

* INR 9.60 million of Andhra Pradesh's 7.35%, 2030 bond was dealt at a weighted average yield of 7.1679%

BENCHMARK LEVELS FOR CORPORATE BONDS

End

With inputs from Pratiksha

Edited by Deepshikha Bhardwaj

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