Corporates usually wait for RBI rate decision before bond offers. Not this time

Corporate Bond Issuances Soar Amid MPC Meeting Uncertainty

In the past two weeks, several Indian financial institutions have issued bonds with a tenure of 10-15 years, collectively raising around ₹19,600 crore. The market participants, however, are wary of the yields post-policy.

Issuers Prefer Longer-Tenure Bonds

• Axis Bank Ltd, Power Finance Corp., Canara Bank, ICICI Bank Ltd, Indian Railway Finance Corp, and ICICI Prudential Life Insurance Co. issued bonds in the past two weeks.
• The issuers prefer longer tenure bonds to lock in their fundraises at current rates before long-term yields harden further.

According to a fixed-income institutional advisory firm, Rockfort Fincap, market participants tend to discount the policy outcome well before the policy based on research and expectations.

Yield Expectations

Economists and analysts are divided on the MPC’s stance in Friday’s decision, with no possibility of a rate hike. However, the market expects that any rate action will have an impact only on the short end of the curve due to a steep yield curve.

The 10-year bond yield has hardened to 6.57% on 30 September from 6.32% on 30 June, driven by concerns over US tariffs, RBI's stance, and expected increase in central-government borrowings.

Supply Glut Driving Yields

A major reason for the fundraising rush by corporates has been the increased issuance of bonds by central and state governments, which has saturated the long-term market and reduced demand for corporate issuers.

• States have borrowed ₹5.23 trillion—62.1% of their planned borrowing till the December quarter—higher than ₹4.37 trillion a year earlier.
• Weaker states have been offering rates up to 100 basis points above the yields on central government securities of an equivalent duration to attract investors.

Weaker Rupee Fuels Bond Rush

Despite a 100 bps cumulative rate cut by the RBI since February 2025 and a similar reduction in banks’ cash reserve ratio (CRR) effective September, the 10-year bond yield has largely remained around 6.50%.

The recent bond issues in December saw long-term fundraising at 6.8-7.7% for 10- to 15-year bonds, with most entities typically investing in long-tenor instruments between November and January to meet their minimum investment criteria.

Impact on Bond Market

Icra revised its estimate of bond issuance in FY26 to ₹12.0-12.4 trillion from the earlier estimate of ₹11.1-11.7 trillion, highlighting that this increased supply may lead to further hardening of the yield curve.

On the other hand, banks have been borrowing more as credit growth continues to outpace deposit growth, exerting pressure on their credit-deposit ratios.

Foreign Portfolio Investors' Concerns

Investments by foreign portfolio investors (FPI) have also slowed down, despite a 250 bps differential between the yields on US Treasuries and Indian government bonds.

For foreign investors, a weak rupee means that any incremental gains from higher bond yields in India are offset by the higher hedging costs of converting their investments into the domestic currency.

Net inflows from FPIs stood at $0.2 billion in November compared with $4.03 billion inflows in the previous month, according to a note by India Ratings.

Expert Views

"While soft inflation prints indicate policy space is available, recent developments have muddled the picture," said Umesh Sharma, chief investment officer—debt at The Wealth Company Mutual Fund.

"India’s inclusion in the Bloomberg Global Aggregate Bond Index could support debt-market flows, though these may be balanced by fiscal risks and higher future spending commitments," said Soumyajit Niyogi, director at India Ratings.

"Even with a rate cut, yields are unlikely to fall meaningfully due to rupee weakness and US tariff concerns, and the curve may continue to swing unless OMOs support it," said Venkatakrishnan Srinivasan, managing partner at Rockfort Fincap.