The corporate bond market had an excellent Q1 this fiscal, but activity dropped sharply in Q2
Fresh issuances in corporate bonds moderated to ₹43,000 crore in August, compared with ₹58,000 crore in July, according to RBI data. This decline comes in the backdrop of increase in corporate bond yields and their spreads over government securities.
However, on a cumulative basis (April to August), it was at ₹4 lakh crore in 2025-26 as compared to ₹3.3 lakh crore in the corresponding period of the previous year.
Venkatakrishnan Srinivasan, Founder & Managing Partner, Rockfort Fincap LLP, noted that the corporate bond market had an excellent Q1 (April-June) this fiscal, but activity dropped sharply in Q2 ( July-September).
He attributed the drop in corporate bond issuance to the complete absence of bank bond issuances.
So far this year, total bank borrowings through bonds are barely around ₹10,000 crore — comprising the ₹7,500-crore Tier 2 issue from State Bank of India, ₹1,000 crore from ICICI Bank and a few smaller issues from select small finance banks.
This is in sharp contrast to last year, when bank bond issuances had already crossed ₹60,000–70,000 crore by this time.
Market volumes
“The lack of participation from the banking segment has directly impacted overall market volumes and investor sentiment. Q2 was further marred by a series of negative developments — the RBI’s shift to a neutral monetary policy stance, persistent FPI outflows, concerns around US tariff actions and domestic fiscal pressures linked to GST-related reforms,” Venkatakrishnan said.
Moreover, starting Q2, the 10-year G-Sec yield inched up from around 6.32 per cent to about 6.50 per cent, largely due to the continuous supply of Central and State government bonds. This has pushed long-end yields higher.
For example, the yield of a AAA rated five-year corporate bond increased 13 basis points (bps) from 7.08 per cent during the August 16 – September 15 period to 7.21 per cent during the September 16 – October 15 period. The spread of this bond over the corresponding maturity risk-free rate increased from 79 bps to 92 bps, per RBI data.
Venkatakrishnan assessed that overall, Q2 has clearly underperformed Q1. The combination of subdued bank participation, rising sovereign supply and investor preference for short-dated bonds has led to lower issuance volumes and wider spreads.
Published on October 22, 2025