Private companies have achieved a historic milestone in India's corporate bond market, with private sector issuers accounting for 72% of total private placement bond issuance between January and September, up from 62% in the same period last year. According to PRIME Database data, this represents the highest share ever recorded for private issuers in the Indian bond market. However, total issuance across all categories fell 6% to ₹7.84 lakh crore ($84 billion), down from ₹8.35 lakh crore a year earlier. As per Venkatakrishnan Srinivasan, founder and managing partner at Rockfort Fincap LLP, the pullback comes down to pricing, not weaker demand for PSU debt, with PSUs having cheaper funding alternatives including a Reserve Bank of India facility letting them swap dollar borrowings at a fixed 1.5% rate through December.
Investors are showing unprecedented appetite for long-term corporate bonds, creating a stark mismatch with corporate issuance patterns. According to reports from Business Standard, when insurance broker Aon Inc. sold $2 billion of 30-year notes on Monday as part of a $13.5 billion debt package, investor orders exceeded $14 billion, making the 30-year tranche the most sought-after portion of the seven-part offering. Similarly, when drugmaker GSK Plc sold $500 million of 30-year debt last week, demand was approximately 15 times larger than supply. This demand exceeds the average orders for high-grade US corporate bonds, which have equaled about four times the notes for sale in 2026.
Public sector undertakings have experienced a dramatic retreat from bond markets, with bond sales by public sector undertakings collapsing 82% to ₹7,071 crore from ₹38,534 crore a year earlier. Power Finance Corp. and REC Ltd. both withdrew planned bond sales in August after declining to pay the yields investors were demanding on shorter tenors, even as both went on to raise longer-dated bonds with strong response. As Srinivasan explained, the issue was the price investors were demanding for particular tenors, with PSUs currently having considerable flexibility to choose between bank funding, short-term instruments, domestic bonds and foreign currency borrowings. He expects the gap to close quickly once pricing turns favourable again, contrasting this with non-bank lenders whose continuous funding needs leave them less room to hold out.
Private non-banking financial companies have achieved a significant milestone, raising ₹3.25 lakh crore, up 8%, enough to overtake public sector financial institutions as the largest issuer category for the first time in the dataset. Private manufacturing and services firms also showed strong growth, raising ₹2.25 lakh crore, up 23%. Borrowing by public sector financial institutions and banks, historically the dominant category, fell 23% to ₹2.02 lakh crore. This shift reflects the changing dynamics in India's corporate bond market, where companies increasingly prefer cheaper bank credit lines, with the weighted average lending rate on fresh rupee loans of scheduled commercial banks falling to 8.52% in July from 8.99% in March.
Rising yields are creating both opportunities and challenges for market participants, with the 10-year corporate bond yield rising by 15 basis points to 7.83% since April 2nd, compared to the 10-year government bond yield at 7.05% on Monday. According to Business Standard reports, the 30-year Treasury yield has risen nearly 0.5 percentage point this year, closing at a post-financial crisis high of about 5.37% a day before the Fed hiked interest rates by a quarter percentage point. The US central bank on Wednesday signaled another increase is coming this year as higher oil prices and the prolonged Iran war fuel inflation concerns.
The shift away from long-term debt is creating significant market implications, particularly for institutional investors. As reported by Business Standard, declining sales volume of bonds maturing in 30 years or more could result in some companies having to refinance their debt more often as their liabilities become shorter-term. This creates challenges for insurance and pension investors seeking long-dated debt to match annuity and pension payout maturities. In secondary trading, Aon's 30-year note has outperformed the deal's shorter-dated tranches, reflecting the acute bid for duration in a market where new long-term supply is being rationed by cost. The supply gap has created a duration crisis for institutional investors, with pension funds and insurers now facing severe constraints.
