Currently, the spread between government securities and AAA-rated corporate bonds maturing in 10-year is hovering at 65 basis points, which is lower than the usual spread of 75-85 bps. In the five-year segment, the spread has narrowed to 25 basis points. “It is basically a demand-supply scenario. The supply towards government securities is constant, whereas in corporate bond, demand is weak from mutual funds and supply is not resuming as people are waiting for the central bank’s credit policy,” said Ajay Manglunia, MD and head of institutional fixed income at JM Financial. According to market participants, yields on AAA-rated corporate bonds maturing in 10-year are hovering between 6.85% and 6.90%, while the 10-year benchmark G-Sec is trading almost at 6.20%. Similarly, the five-year papers are traded between 5.90% and 5.95% in the secondary market of corporate bond and five-year G-Sec is traded at 5.73%. In past few days, yields on government securities have constantly been rising due to heavy supply of papers and rising crude oil prices in the international market. The supply of corporate bond has been muted as most companies remained on the sidelines ahead of the RRI’s monetary policy and weak demand from mutual funds due to muted inflows into long-end funds. This has capped the yields on corporate bonds and resulted in narrowing of spread between both.