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Informist, Tuesday, Oct. 6, 2026

 

By Vaishali Tyagi 

 

NEW DELHI – Corporate bond yields ended steady in the secondary market Tuesday after moving in a narrow range as participants avoided large bets ahead of the RBI's Monetary Policy Committee decision Wednesday, dealers said. A few mutual funds and banks were seen buying bonds, supported by ample liquidity in the banking system and an intraday fall in the December futures contract of Brent crude below the psychological mark of $100 per barrel, they said. Market participants widely expect the rate-setting panel to raise the repo rate by 25 basis points to 5.50% on Wednesday, kicking off a tightening cycle, dealers said.

 

Corporate bond yields saw a spillover effect from government bonds, dealers said. An intraday fall in crude oil prices and a decline in US Treasury yields pushed government bond yields marginally lower, while better-than-expected cut-offs at the state bond auction added to the positive momentum. These factors spurred some buying interest in the corporate bond market. The net liquidity absorbed by the RBI – a proxy for the banking system liquidity surplus – was at INR 5.30 trillion Monday, up from INR 5.16 trillion on Sunday.

 

On Tuesday, 12 states raised INR 236 billion at the auction, below the notified INR 251 billion that 13 states were scheduled to raise. Cut-off yields came in lower than market expectations, dealers said. The Reserve Bank of India set a cut-off yield of 7.91% on Madhya Pradesh's 10-year bond, lower than the 7.92% estimated in an Informist Poll.

 

"Levels (yields) were largely similar to yesterday's (Monday) or flat as traders are avoiding large bets ahead of the MPC outcome tomorrow (Wednesday), though there was some buying from mutual funds and banks but in small quantum," a dealer at a state-owned bank said. "The fall in crude oil prices, lower US yields and better-than-expected state bond auction cut-offs led to some buying and lifted sentiment, even though the bets were not large."

 

The yield on three-year bonds issued by the National Bank for Agriculture and Rural Development was 7.84-7.88% Tuesday, as against 7.87-7.89% Monday, while the indicative yield on NABARD's five-year bonds was 7.85-7.90%, similar to 7.89-7.91% Monday. The yield on the 10-year NABARD bond was at 7.90% Tuesday. The benchmark 10-year 6.94%, 2036 bond ended with a yield of 7.1928%, down from the previous close of 7.2108% on Monday. 

 

In the secondary market, deals worth INR 114.54 billion were recorded on the National Stock Exchange and BSE combined, down from INR 175.82 billion Monday. Paper issued by Reliance Industries, Poonawalla Fincorp, Piramal Finance, UGRO Capital, Bajaj Housing Finance, Andhra Pradesh State Beverages Corp., Laxmi India Finance, Tata Capital, and Lucina Land Development were traded actively. 

 

Mutual funds were active on the selling side earlier in the day, while towards the close, mutual funds and banks picked up small quantities of longer-tenure bonds as sentiment improved after the fall in crude prices, dealers said. Insurance companies and pension funds remained absent from the corporate debt market. Dealers said the selling earlier was aimed at offloading holdings to make room for higher-yielding instruments after the MPC meeting.

 

In the primary market, activity remained subdued ahead of the RBI policy meeting, dealers said. Even though a rate hike has largely been priced in, traders are awaiting clarity and will closely watch the RBI governor's commentary for cues on inflation, GDP and liquidity management. Market participants expect some liquidity-management measures but do not expect an incremental cash reserve ratio.

 

Corporate bond supply was INR 25.95 billion on Tuesday, higher than INR 9.90 billion on Monday. On Monday, Bajaj Housing Finance raised INR 25 billion through an August 2036 bond reissue. OPG Power Generation also tapped the bond market to raise funds. On Wednesday, issuances worth INR 22.75 billion are scheduled to hit the corporate debt market. Piramal Finance plans to raise up to INR 20 billion through November 2029 bonds, while JM Financial Home Loans has invited bids to raise up to INR 1.25 billion through February 2030 bonds. Unifinz Capital India and Edelweiss Asset Reconstruction Co. will also tap the market to raise funds. 

 

Given the domestic and global scenario, a 25-bps hike looks increasingly likely in the October policy due to rising crude prices, persistent inflation risks, elevated global bond yields, and tightening by global central banks, market participants said. If the RBI holds rates this time, it may be to avoid hurting consumption and borrowing costs during the festival season. However, if there is no hike in October, pressure will persist and the December policy could see a sharper 50-bps hike, depending on inflation, crude, currency movement and global yields.

 

"Expecting pass-through from WPI (wholesale price index) to CPI to raise inflation pressures - RBI to opt for a 25 bps increase in October but retain the 'neutral' stance to signal only a moderate tightening phase," YES Bank said in a note. "If there is a rate hike, we expect some rise in corporate bond yields... even though the hike has largely been priced in, overall rates are expected to move up, especially government bond yields, which is likely to have a ripple effect on corporate bonds," a fund manager at a mutual fund house said.

 

BENCHMARK LEVELS FOR CORPORATE BONDS:

 

Tenure	Tuesday	Monday
Three-year	7.84-7.88%	7.87-7.89%
Five-year	7.85-7.90%	7.89-7.91%
10-year	7.90%	7.92%

 

UDAY BONDS

In the secondary market, two Ujwal DISCOM Assurance Yojana bonds worth INR 145.50 million were traded Tuesday, according to data on the Reserve Bank of India's Negotiated Dealing System–Order Matching System.

 

* INR 144.00 million of Telangana's 8.08%, 2029 bond was dealt at 7.3999%

* INR 1.50 million of Tamil Nadu's 8.04%, 2029 bond was dealt at 7.2208%

 

End

 

Edited by Saji George Titus and Rajeev Pai

 

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