Yields on the benchmark 10-year government bond have declined by 28 basis points over the past month, prompting a significant Rs 17,000 crore fundraise in the Indian bond market. This decline in yields is attributed to favorable market conditions following central bank measures and expectations of Indian debt inclusion in global indices.
The decline in borrowing costs has encouraged issuers to tap the debt market, with the bulk of the funds being raised in the three-year tenure window. Notably, the National Bank for Agriculture and Rural Development (Nabard) secured the lowest rate of 7.16% for Rs 8,000 crore. Meanwhile, Aditya Birla Capital and Bajaj Finance have raised funds in the 10-year bucket.
Market participants highlight that the softening of government bond yields is partly due to the expectation that Indian debt will be added to the Bloomberg Global Aggregate Index. Additionally, global crude prices have fallen following the US-Iran peace deal, further easing borrowing costs.
“There has been a rebound in issuances in the past month as market sentiments turned favourable after the central bank announced the ECB and FCNR(B) measures.”
Venkatakrishnan Srinivasan, managing partner at Rockfort Fincap
The Reserve Bank of India's recent measures, including easing foreign currency funding for public sector companies, have also contributed to the favorable borrowing environment. The benchmark 10-year government bond yield has decreased to 6.72% from a peak of 7.13% in late May.
"There has been a rebound in issuances in the past month as market sentiments turned favourable after the central bank announced the ECB and FCNR(B) measures," said Venkatakrishnan Srinivasan, managing partner at Rockfort Fincap. "I expect these favourable conditions to continue into the second quarter. What happens after September will have to be seen, because that is when the central bank schemes end."
“I expect these favourable conditions to continue into the second quarter. What happens after September will have to be seen, because that is when the central bank schemes end.”
Venkatakrishnan Srinivasan, managing partner at Rockfort Fincap
India's bond market has witnessed significant growth over the past decade, driven by regulatory reforms, digital platforms, and rising retail participation. However, experts emphasize the need for stronger liquidity, higher foreign investment, and broader lower-rated debt participation to sustain this growth.
Background
India's bond market has grown significantly over the past decade, driven by regulatory reforms, digital platforms, and rising retail participation. While market depth and innovation have improved, experts say stronger liquidity, higher foreign investment, and broader lower-rated debt participation remain key growth priorities.
As the RBI's special forex swap window to boost foreign currency inflows remains valid until September 30, market participants are keenly observing the potential impact on borrowing costs and market dynamics. The continuation of favorable conditions beyond the second quarter will be closely watched, particularly as central bank schemes are set to conclude.
