Dollar Bond Credit Spreads: Dollar bond credit spreads widen along tariff fault lines

Mumbai: A global flight to quality in the aftermath of tariff-driven volatility has widened credit spreads across dollar bonds issued by Indian corporates, leading to a sharp repricing divergence between investment-grade and high-yield bonds in the secondary market. However, following US president (Donald) Trump’s decision to pause reciprocal tariffs for 90 days, while raising Chinese import tariffs to 125%, the bond market rallied, with bonds opening up to 7 points higher.

Private sector companies have seen their spreads widen, whereas government-owned banks and state-owned companies have largely remained steady, with yields on their dollar bonds remaining flat over the past week following the tariff announcement. However, relief came from tariff pause for some issuers like Biocon Biologics‘ 6.67% due 2029 rising 4 points today, though still lower by over 8 points from start of the month.

Benchmark US Treasury yields, which dropped as low as 3.80% early in the week, are back to nearly 4.5% now. While this rally in risk-free assets helped yields on investment-grade corporate bonds, sub-investment-grade bonds reflected the risk-off sentiment. Prices on several high-yield notes such as Vedanta Resources dropped by as much as 6 to 8 points, traders said.

Secondary market pricing was also distorted by liquidity dynamics. Traders said that newer bonds, such as an Exim 2035 note issued earlier this year, are far more actively traded than older lines like the 2031 series. As a result, price action varied across maturities and issuance vintages even within the same credit.

Another trader said that the repricing is not isolated to India. “What we are seeing is a broad-based move across global EM risk assets,” the banker said, adding that equities and commodities also reflected the same risk-off tone. Primary issuance in Asia stalled at the start of the week but began to recover toward the end, with a China deal currently in book-building. India, however, will remain quiet due to the start of a new financial year and issuer silent periods ahead of earnings announcements.