The decision by state-owned lenders National Bank for Agriculture and Rural Development (NABARD) and Rural Electrification Corporation (REC) to withdraw their planned bond issuances reflects growing discomfort among borrowers over rising yields and volatile market conditions, according to analysts.

Harit Oberoi, head – fixed income, Motilal Oswal Wealth Management, said the move highlights the cautious stance being adopted by issuers amid uncertain global financial conditions.

“The withdrawal of bond issuances by NABARD and REC suggests that borrowers are uncomfortable locking in funds at the current elevated yield levels. Issuers are increasingly choosing to wait for more stable market conditions rather than accept higher borrowing costs,” Oberoi said.

Also read: Nabard, REC withdraw ₹11,000 crore bond issues as crude surge and global volatility push up yields

On Thursday, NABARD had planned to raise ₹8,000 crore through seven-year bonds, while REC aimed to mobilise ₹3,000 crore via a two-year issue. However, both entities pulled back their offerings after bids indicated higher-than-expected yields.

Market participants said that had NABARD proceeded with the original seven-year issue and accepted the full amount, it would likely have had to offer a yield of around 7.5-7.6%, significantly higher than earlier expectations.

Rising crude prices add to borrowing pressure

The withdrawals come at a time when global financial markets are witnessing heightened volatility due to rising crude oil prices and escalating geopolitical tensions in the Middle East. The conflict in the region has pushed crude prices close to the $100-per-barrel mark, raising concerns about inflation and interest rate trajectories.

Higher oil prices tend to push inflation upward, which in turn forces investors to demand higher returns on fixed-income securities to compensate for the potential erosion in purchasing power.

Analysts say this environment has made it more difficult for issuers to price fresh debt, particularly longer-tenure bonds.

Also read: Prolonged Middle East conflict, crude above $100 may strain India’s external sector: Standard Chartered

According to Abhinav Tiwari, research analyst at Bonanza Portfolio, the withdrawal of the bond issues reflects a mismatch between borrower expectations and investor demand in the current environment. Investors are demanding higher yields due to uncertainty surrounding crude prices, rupee weakness, global geopolitical tensions, and domestic liquidity conditions.

He added that the current situation suggests pricing power in the bond market has temporarily shifted towards investors. As a result, new bond issuances may increasingly be postponed, downsized, or shifted to shorter tenures until market volatility eases.

“Primary bond issuances may increasingly get delayed, downsized, or shifted to shorter maturities until volatility eases. In the near term, PSU and corporate borrowers may need to offer higher spreads over government securities, pushing up overall borrowing costs,” Tiwari added.

Volatility in bond markets

Bond markets in India have also seen fluctuations in benchmark yields in recent sessions. The yield on the benchmark 10-year government security has moved within a relatively wide band, reflecting uncertainty around inflation expectations and global risk sentiment.

The yield on the benchmark 6.48% 2035 government bond has oscillated between around 6.63% and nearly 6.78% since geopolitical tensions intensified, highlighting the volatility in the secondary market.

Vishal Goenka, co-founder of IndiaBonds.com, noted that while the swings are moderate compared with global benchmarks, such as the US 10-year Treasury yield which has climbed 25–30 basis points and experienced intraday swings of nearly 10 basis points.

He added that Indian markets have shown some resilience relative to the extreme turbulence abroad.

Also read: Sensex, Nifty tumble 2%, log worst week in four years as oil crisis deepens; ₹10 lakh crore investor wealth erased

10-year G-sec yield relatively stable

Despite the sharp surge in oil prices and pressure on the rupee, the benchmark 10-year government security (G-sec) yield has remained relatively stable, indicating the presence of strong policy support. According to the latest bond market outlook by DSP Mutual Fund, the 10-year G-sec yield has stayed below the 6.72% mark even as crude prices climbed above $85 per barrel and the rupee weakened past the 92 level.

The fund house noted that the Reserve Bank of India appears to have intervened in the secondary market to stabilise yields. Data from the Wholesale Debt Market Segment (WSS) and the Clearing Corporation of India Ltd (CCIL) suggests that the central bank may have purchased government securities worth nearly ₹70,000 crore over the past two weeks. The move signals the effectiveness of what market participants describe as the “RBI put”, helping prevent a sharp spike in bond yields despite global volatility.

Also read: Amid the Middle East war, RBI unlikely to turn aggressive to protect the rupee

However, the escalating conflict involving the United States, Israel, and Iran has injected significant uncertainty into financial markets. With crude oil touching a 19-month high and the risk of disruptions in the Strait of Hormuz, bond market outlooks now depend heavily on how long the conflict persists, it said.

In the money market segment, however, the outlook remains more constructive. With overnight rates hovering around 4.9% and short-term funds offering yields close to 7%, DSP believes the current environment provides a cushion against mark-to-market volatility. The accrual income from these instruments could help offset potential price fluctuations, making this a favourable time for investors to lock in yields.

Brokerage firm HDFC Securities also remains moderately optimistic about India’s fixed-income market over the medium term. The firm expects supportive factors such as benign inflation expectations, comfortable liquidity in the banking system, and ongoing fiscal consolidation to underpin the bond market.

At the same time, it cautioned that a prolonged conflict in West Asia could complicate the outlook. Higher crude oil prices could widen India’s current account deficit, exert pressure on inflation, and weaken the rupee-factors that could eventually impact bond yields.