The growing fiscal challenges in the United States are starting to ripple across global markets, sparking renewed conversations around de-dollarisation.
In an exclusive interaction with ETMarkets, Puneet Pal, Head of Fixed Income at PGIM India Mutual Fund, explains how the rising U.S. debt burden and persistent fiscal deficits are reshaping investor sentiment.
While immediate outflows from U.S. bonds remain limited, Pal believes the long-term implications could be significant — potentially benefiting emerging market assets, including India.
He also shares his outlook on yield curves, the shift in U.S. bond issuance strategy, and the broader impact on global fixed income markets. Edited Excerpts –
Q) How would you describe the current size and depth of the corporate bond market in India?
A) Indian corporate bond market is big, with over Rs. 53 lakh crore of outstanding corporate bonds. Not only in terms of the amount of outstanding bonds but also in terms of different types of instrument/structure, the corporate bond market in India is well developed.
In terms of the depth, AAA rated securities dominate both the primary market and the secondary market liquidity. The key challenge is to increase the secondary market liquidity especially in lower rated securities.
Institutional investors are, by far, the largest holders and participants in the corporate bond market. Retail participation is limited. Majority of the institutional investors in the corporate bond market are long only investors with a buy and hold strategy.
This is especially true in respect of lower rated bonds below AA with not many participants doing active trading, resulting in lower trading volumes compared to the government securities market.
Thus, we can say that in spite of impressive increase in the total outstanding amount, depth of the corporate bond market remains relatively shallow.
The daily trading volumes in the corporate bond market range between Rs. 8,000-10,000 crores on an average which pales in comparison to the daily average trading volumes in government securities market of Rs. 50,000-70,000 crores.
Also, the corporate bond market remains an OTC market compared to the screen-based market in G-secs, which impacts price discovery, especially in lower rated bonds.
Thus, we need to increase liquidity in the secondary market and along with it make the secondary market price discovery more efficient.
Q) 2025 has seen record-breaking corporate bond issuances. What factors are driving this surge in new issuance?
A) We have seen a decent increase in primary market activity this year. This is mostly driven by lower interest rates with issuers looking to lock in the current attractive yields. Majority of the issuance has been from NBFCs and PSUs.
Q) The US is currently grappling with a growing debt crisis. How do you see this impacting global bond markets?
A) The US economy is facing a huge debt challenge with elevated fiscal deficit. The rising debt burden and the Tariff issue has fuelled the narrative of de-dollarisation, leading to a search for diversification away from the US dollar/Bonds.
Though, at present, this has not led to a meaningful flow away from US bond markets but can have potentially far-reaching consequences for US assets and can benefit emerging market assets.
Given the fact that higher debt/fiscal deficit in US, will lead to US yields staying elevated, the yield curve can remain/become steeper including in the case of emerging markets.
Q) Issuance of ultra-long-term US Treasury bonds has slowed down. What’s driving this trend?
A) The need to reduce the pressure on long end bond yields in US has led to more issuance at the shorter end and this trend may continue in the near term.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)