Corporate bond activity weakens as yields surge, issuers pull back

India's corporate bond market has seen subdued activity amid global uncertainty and rising yields, with issuers deferring borrowings and FY26 issuances trailing last year's levels

Amid ongoing geopolitical turmoil, India’s corporate bond market has witnessed subdued activity in the current calendar year, with March — typically a peak issuance period — remaining particularly muted. The sharp rise in yields, especially at the short end of the curve, has led several issuers, including prominent state-owned entities, to defer or withdraw their planned bond issuances.

 

Fund-raising has become more challenging in recent weeks, with several highly rated issuers withdrawing planned borrowings after investors demanded higher yields than issuers were willing to pay. National Bank for Agriculture and Rural Development (Nabard) and REC cancelled or scaled back their offerings. Small Industries Development Bank of India (Sidbi) had earlier scrapped a planned Rs 8,000 crore bond issue on March 4.

 

Market participants say the trend reflects cautious investor sentiment amid global uncertainty, which has increased volatility in the rates market. As a result, issuers are finding it difficult to raise funds at favourable pricing, particularly in shorter-tenor papers where demand has weakened.

 

Activity in the primary market has become selective, with successful issuances largely confined to longer-tenor bonds where long-term investors still have funds to deploy. Going forward, traders expect bond sales to be concentrated among select public sector undertakings and public sector banks where pricing expectations between issuers and investors are aligned.

 

Data show that in FY26, corporate bond issuances totalled Rs 9.71 trillion (as of March 11, 2026), compared to Rs 11.04 trillion in FY25 and Rs 10.24 trillion in FY24.

 

“Throughout this year, the market has remained volatile, particularly after the RBI shifted its stance from accommodative to neutral. This change signalled that further rate cuts were unlikely, triggering an upward movement in yields. External factors compounded the situation. The delay in India’s inclusion in global bond indices by Bloomberg, along with geopolitical tensions and a sharp rise in crude oil prices beyond $120 per barrel, further pushed yields higher. At the same time, the rupee weakening to all-time lows added to the pressure,” said Venkatakrishnan Srinivasan, founder and managing partner, Rockfort Fincap LLP.

 

Given these conditions, the 10-year G-sec yield has been fluctuating around the 6.70–6.75 per cent range.

 

Going forward, if inflationary pressures persist due to elevated crude prices, there is a strong possibility of a rate hike in the third quarter (October–December 2026) of the incoming fiscal year. As a result, the market is unlikely to stabilise immediately, market insiders said.

 

“This volatility has significantly impacted the corporate bond market. Issuers, especially PSU entities, prefer stable market conditions over absolute pricing. Since borrowing levels are benchmarked against peer issuances, even a slight deviation in yields often leads to cancellations or postponements of bond issues. Additionally, strong participation from institutional investors like EPFO has enabled select issuers, particularly PSU banks, to raise funds at relatively lower rates. However, issuances without such backing or those in shorter tenors are either priced higher or withdrawn altogether,” Srinivasan said, adding that on the supply side, continued high borrowing by both the central and state governments, coupled with fiscal pressures, is likely to keep yields elevated.