Low premiums on parts of Indian credit prompt calls for RBI help

Spreads on five- and 10-yr rupee corporate bonds diverging

Tightening premiums are often a sign of a strong credit market, but recently it’s more about dislocations in the yield curve due to central bank interventions.

As the Reserve Bank of India (RBI) tries to tame borrowing costs amid the pandemic, spreads on five- and 10-year rupee corporate bonds that usually move in lockstep have diverged, with premiums on the shorter notes falling. The problem is that it’s not happening because of strong demand.

It’s a byproduct of the RBI focusing on keeping the benchmark 10-year sovereign yield from rising. That’s sparking an increase in corporate premiums based on the rate, while