A sharp drop in government bond yields has triggered a rush of corporate bond issuances, with companies seeking to raise over ₹17,000 crore this week. The 10-year benchmark yield fell to 7.30% from 7.50% last week, driven by a collapse in Brent crude oil prices to $93.52 after the US midterm elections. Corporates are moving to lock in cheaper funding amid a view that this window may not last, leading to the highest weekly supply in months.
This surge, however, is not evenly distributed. Data from October shows a two-tiered market: while overall corporate bond fundraising fell 37% month-on-month to ₹80,500 crore, AAA-rated companies accounted for 68% of the total, raising ₹54,629 crore. In contrast, non-banking finance companies saw their bond fundraising drop 19% to ₹24,457 crore. The yield on three-year NABARD bonds, a benchmark for many NBFCs, rose to 8.30-8.33% at the end of October from 7.88-7.90% a month earlier.
Divergent funding costs and a flight to quality
The rise in shorter-term yields reflects tighter banking system liquidity and expectations of further monetary tightening. This has raised borrowing costs precisely when NBFCs need funds to support loan growth. Investors, wary of volatility, are showing a clear preference for the safety of top-rated issuers, leaving lower-rated and NBFC borrowers behind. The pressure on NBFC margins could constrain credit availability to segments they serve, such as small businesses and consumer finance.
The pipeline for future issuances relies on NBFCs and infrastructure-related public sector undertakings, but volatile yields and funding costs may constrain borrowing. For the current supply surge to sustain, government bond yields need to remain subdued and global risk sentiment supportive. If yields reverse, the window for cheap corporate funding will snap shut, testing the appetite for the glut of paper already in the market.