Short-Term Debt Market Found its Mojo Back in June, Here’s Why

The short-term money market was booming in June as issuances of commercial papers and certificates of deposit rose sharply, both, on a monthly and yearly basis.

Companies raised ₹2.51 trillion through CPs in June, a 107.4% increase from May, and 60.9% increase from June 2025. Average yields were little changed from May, but remained higher than year-ago levels. The primary market for certificates of deposit saw scheduled commercial banks raising ₹1.7 trillion in June, up 66.9% from ₹1.0 trillion in May and up 40.9% from ₹1.2 trillion in June 2025. Funding costs moderated slightly, with the average issuance yield easing to 7.04% from 7.14% in May.

The primary market for commercial papers continued to be dominated by financial institutions. Development finance institutions - National Bank for Agriculture and Rural Development, Export-Import Bank of India, and Small Industries Development Bank of India – were among the largest borrowers. Large non-bank financial companies and securities firms also showed heightened activity.

Energy and retail sector companies Reliance Retail Ventures Ltd, Hindustan Petroleum Corp, and Indian Oil Corp, tapped the short term debt market for liquidity management and working capital funding.

On the other side, banks stepped up issuances of certificates of deposit ahead of the quarter-end as they refinanced maturing CDs.

The issuance pattern for June indicates that banks used CDs primarily as a short-term funding instrument, rather than locking in longer-term wholesale funding. Most issuances were concentrated in maturities of around three to four months, allowing lenders to maintain flexibility over their funding profile.

For commercial papers, the average maturity was 106.5 days, virtually unchanged from May's 107.0 days, indicating that in this market as well, issuers continued to favour borrowing for approximately three to four months rather than extending maturities. By comparison, the average tenor in June 2025 was 121.7 days.

The surge in June CP and CD issuances points to a broader shift in funding behaviour as easier liquidity conditions and lower short-term interest rates made money market instruments more attractive. Corporations increasingly relied on CPs to meet working capital requirements at competitive rates, while banks supplemented deposit growth through CDs to support sustained credit demand and manage quarter-end funding requirements.

Issuance Analysis

In the CD market, the wholesale funding activity was concentrated among a handful of large banks. HDFC Bank was the month's largest issuer, mobilising ₹262.85 billion, followed by Bank of Baroda with ₹241.25 billion and Union Bank of India with ₹211.75 billion.

Together, the three lenders accounted for 42.0% of the total issuance during the month.

Public sector banks led primary market activity, with Bank of Baroda, Union Bank of India, Punjab National Bank, Canara Bank and Central Bank of India among the largest issuers. Private sector issuance was led by HDFC Bank, Axis Bank, ICICI Bank, IDFC First Bank and IndusInd Bank. Overall, issuance remained concentrated among larger banks with regular access to the wholesale market.

The number of issuers also increased to 28 from 24 a month earlier.

Companies, on the other hand, issued commercial paper for liquidity management and working capital funding. The number of issuers increased to 167 from 132 in May, although it remained slightly below 177 in June 2025.

Yield trends
For commercial papers, the weighted average issuance yield stood at 7.80% in June, compared with 7.78% in May and 6.88% in June last year.

The negligible increase from May suggests funding costs were broadly stable during the month despite the higher volume of issuances.

Individual issuance yields ranged from 6.15% to 14.50%, illustrating the wide variation in funding costs across issuers depending on credit profile, tenor and investor demand.

The issuance pattern was concentrated in shorter maturities, with approximately three-month CPs accounting for a significant share. Longer-dated nine-month and one-year papers remained comparatively limited.

Banks also leaned towards papers with shorter maturities during June. The average tenor stood at 106 days, with the bulk of issuances falling in the 90–120-day maturity bucket. The preference for shorter-dated paper indicates that lenders raised funds to meet near-term liquidity requirements and refinance maturing CDs rather than extend the maturity profile of their liabilities.

Funding costs eased marginally with the average issuance yield easing to 7.04% from 7.14% in May, suggesting that banks were able to raise larger volumes without paying materially higher borrowing costs.

Issuance yields during June ranged from 6.20% to 8.00%. Lower yields were associated with shorter-tenor instruments, while longer-dated CDs continued to be priced at a premium. The concentration of issuance in shorter maturities also contributed to the moderation in the month's average funding cost.

Outlook
The short-term debt market will continue to serve as an important source of funding for financial institutions and large corporations as well as for banks.

While the pace of CP issuances in July will depend on refinancing requirements, investor demand for short-term instruments and broader money market conditions, CDs will track the pace of upcoming maturities and banks' funding needs after the June quarter-end. Continued reliance on wholesale funding would help sustain activity in the CD market. Future pricing will depend on short-term money market conditions and investor demand for bank paper.

Activity among financial institutions is expected to remain a key determinant of primary market volumes for CPs, while future pricing of CDs will depend on short-term money market conditions and investor demand for bank paper.