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

Heightened volatility in global financial markets, triggered by the sharp surge in crude oil prices amid escalating tensions in the Middle East, is beginning to ripple through India’s debt market, making it difficult for issuers to price fresh bond offerings.

In a fresh development, state-owned entities -- National Bank for Agriculture and Rural Development (Nabard) and Rural Electrification Corporation (REC) -- withdrew their planned bond issuances on Thursday after bids indicated higher-than-anticipated borrowing costs.

Nabard had initially planned to raise ₹8,000 crore through seven-year bonds, while REC intended to mobilise ₹3,000 crore via a two-year issue.

Given the current market conditions, if Nabard had proceeded with the original seven-year issue and accepted the entire ₹8,000 crore, it would likely have had to offer a yield of around 7.57%.

In a move to mitigate borrowing costs, Nabard said it would return to the market on March 16 with a revised issuance plan, seeking to raise ₹8,000 crore through bonds with a shorter three-year maturity instead of the earlier seven-year tenure.

Inflation concerns keep yields elevated

The developments come at a time when the surge in crude oil prices - which briefly crossed the $120-per-barrel mark this week amid the West Asia conflict - has heightened concerns over inflation and external sector pressures for oil-importing economies such as India. Higher energy prices tend to push inflation higher, which in turn prompts investors to demand higher yields on fixed-income instruments.

While periods of equity market stress often lead investors to rotate funds into relatively safer government securities, providing temporary support to bond prices, the current episode has been complicated by inflation risks stemming from the oil price spike. As a result, bond yields have remained elevated, limiting the typical safe-haven rally in debt markets.

“From the start of 2026, the 10-year government bond yield is only about 8 basis points higher, which is unusual given the extreme uncertainty globally across asset classes. Therefore, companies withdrawing issuances is more sentiment-driven. India’s bond market has not been particularly volatile, especially when compared with the US, where the 10-year Treasury yield has moved up by 25–30 basis points from its lows and sometimes swings 10 basis points intraday,” said Vishal Goenka, co-founder of IndiaBonds.com.

The yield on India’s benchmark 6.48% 2035 government bond has moved within a wide band of about 6.63% to nearly 6.78% since geopolitical tensions intensified, indicating heightened uncertainty in interest rate expectations. On Friday, the benchmark yield stood at 6.679%, slightly higher than 6.669% in the previous session.

Risks from prolonged West Asia conflict

Despite the near-term volatility, brokerages remain constructive on the medium-term outlook for India’s fixed-income market. A recent report by HDFC Securities said benign inflation expectations, ample liquidity in the banking system, and continued fiscal consolidation could support bond markets.

However, it cautioned that a prolonged conflict in West Asia could push crude prices higher, widen India’s current account deficit, and put pressure on both inflation and the rupee, posing risks to the debt market outlook.

“The conflict in West Asia, if prolonged, will have adverse implications for India's inflation and external sector dynamics. India's dependence on the region through trade and remittances remains very high and could push up India's inflation and worsen its current account balance, thereby having adverse implications for the INR.”

Given the current liquidity-driven repricing in the market, HDFC Securities said short- to medium-term bond yields are trading at attractive spreads, making short-duration debt funds and money market instruments favourable investment options for investors with shorter investment horizons.