Indian states to sell INR445.5B of bonds on Feb. 24

Indian states to sell INR445.5B of bonds on Feb. 24

Indian States Raise INR394.5 Billion in February Debt Sale Amid Strong Demand

Indian states successfully raised INR394.5 billion ($4.35 billion) through a bond sale on February 24, 2026, exceeding their planned issuance quantum and reflecting improved market sentiment amid easing liquidity conditions according to market reports. The sale, which included debt instruments across various maturities, saw cutoff yields fall below market estimates for the second consecutive week, signaling investor confidence despite earlier concerns about rising borrowing costs.

The bond auction followed a broader trend of increased corporate and state borrowing in early 2026. State-run entities, including the National Bank for Financing Infrastructure and Development (NaBFID), Housing and Urban Development Corp (HUDCO), and Power Finance Corp (PFC), have been actively accessing bond markets to secure funds before anticipated further rate hikes. Analysts note that firms are no longer waiting for borrowing costs to decline, as yields have stabilized after a sharp rise post-budget in January.

Market participants attributed the strong demand to the Reserve Bank of India's (RBI) efforts to maintain liquidity, with surplus funds in the banking system averaging INR2.7 trillion daily in February. This has helped stabilize overnight rates and supported bond prices. The benchmark 6.48% 2035 government bond yield closed at 6.66%, down 11 basis points over six sessions, reflecting improved investor appetite.

However, challenges remain. Corporate bond yields have risen in tandem with government securities, increasing borrowing costs for firms. For instance, PFC and SIDBI had previously withdrawn shorter-duration bond sales in December due to pricing pressures, highlighting the delicate balance between supply and investor expectations.

With the central bank expected to maintain a "higher-for-longer" rate stance, analysts suggest that pricing flexibility will be critical for future bond sales. "The key determinant will be the pricing," said Nikhil Aggarwal of Grip Invest, noting that investors are likely to demand higher yields amid inflation uncertainty.

The February 24 sale underscores the resilience of India's debt markets, even as firms navigate a challenging rate environment.