Corporate bond issuances have experienced a significant slowdown, with listed issuances falling to ₹58,781 crore in July till July 27, down from ₹98,995 crore in June, according to Prime Database. Overall issuances, including private placements, stood at ₹92,799 crore compared with ₹1.16 lakh crore in June. As reported by The Financial Express, major issuances have been largely absent over the past two weeks as borrowers adopt a wait-and-watch approach amid market uncertainty. The decline reflects broader market conditions where household and business financial stress indicators have plateaued over the past 12 months, with households maintaining healthy balance sheets despite high indebtedness levels. However, recent developments show signs of recovery as companies advance borrowing plans ahead of the RBI's monetary policy review scheduled for August 3-5.
Bond yields have experienced significant fluctuations, with the 10-year AAA-rated bond yield rising 10-15 basis points to 7.55% before easing to around 7.40%, according to Bloomberg data. The three-year bond yield rose by as much as 25 basis points during the volatile period. Oil prices surged to $100 a barrel before easing to around $83, while the rupee came under pressure, pushing the benchmark 10-year G-Sec yield above 6.80% before it eased to around 6.76% as crude prices fell. The inverse relationship between bond prices and interest rates means that when rates rise, bond prices typically fall below face value, while when rates drop, bond prices can rise above face value. This volatility is part of a broader trend where corporate bond and equity valuations are stretched relative to historical norms, with growing government debt issuance globally contributing to rising term premiums in sovereign yields.
Despite the overall decline, recent market activity shows some companies are advancing borrowing plans ahead of policy decisions. Several corporates, including NBFCs Jio Credit and Hero Fincorp, as well as Tata Projects and NIIF Infrastructure Finance, raised ₹2,520 crore through private placements on Thursday, according to Business Standard. Jio Credit raised ₹1,025 crore in two tranches - accepting ₹525 crore through three-year bonds at 7.95% and ₹500 crore through five-year bonds at 8.05%. NIIF Infrastructure Finance raised ₹550 crore through three-year bonds at 7.88%. Market participants noted that cut-offs were along expected lines, with the primary market revival in June after comparatively muted activity in the first two months of the current financial year.
Market participants expect issuers to return once conditions stabilise and geopolitical tensions ease, giving them greater confidence to raise funds at more predictable yields and better pricing. Puneel Pal, head of fixed income at PGIM Mutual Fund, noted that after the renewed strikes, corporate bond yields have gone up by 10 basis points, leading to a slowdown in issuances. However, he expects the inflows from RBI's measures to support yields going forward. With the RBI's monetary policy announcement scheduled next week, some issuers may advance their borrowing plans and tap the domestic bond market ahead of the policy decision, which could provide a fillip to primary bond market activity. The 10-year AAA-rated bond yield rising 10-15 basis points to 7.55% before easing to around 7.40% reflects the current market uncertainty, with investors becoming increasingly selective about credit quality and maturity lengths.
With volatile markets, increased reliance on bank funding and some demand shifting to the swap facility for overseas borrowing, market participants said the overall impact on corporate bond issuances this year remains to be seen. Mataprasad Pandey, vice-president at Arete Capital, noted that once crude oil prices, one of the key drivers of bond yields, begin to decline, there may be a revival in corporate bond issuances in the coming months. However, the financial system faces growing vulnerabilities that could amplify any stress event. A sudden loss of confidence among market participants could lead to a severe repricing of risk, potentially causing a sharp correction in asset valuations and forcing asset sales that could create a self-reinforcing liquidity spiral. Additionally, a sharp drop in investor appetite for sovereign debt could reduce market liquidity, affecting other fixed-income markets and potentially disrupting core funding markets, with banks and asset managers relying on repo markets facing significant liquidity pressures.
