Mumbai: An unusually large deal in the thinly traded debt market has raised eyebrows as ICICI Prudential Mutual Fund, the country’s top fund house, sold almost Rs 3,000 crore of top-rated Vodafone bonds to investors including ICICI Bank and HDFC Bank in the secondary market, three people familiar with the matter told ET.

Vodafone India and Idea Cellular are merging and the formalities of the transaction are likely to conclude in this financial year.

“The fear of a possible downgrade may have prompted the investor to exit holdings as the telecom company has recently acquired Idea Cellular, rated AA+, a notch lower,” said one person. It was not clear whether the fund house sold the bonds at a profit or loss.

A spokesperson for ICICI Prudential MF declined to comment on the matter. Emails sent to the two banks that purchased the bonds remained unanswered until the publication of this report.

Those two series of bonds are maturing in the next two calendar years. ICICI Bank, the country’s largest private sector lender, invested about Rs 1,500 crore in the bonds. HDFC Bank invested almost Rs 1,200 crore in the papers retiring in 2019. Yields were in the range of 8.50-9% in the deals transacted on Wednesday. Some other fund houses and a foreign bank are also said to have invested in the securities in dribs and drabs.

Debt investors are now mostly shying away from making new bets amid rising bond yields. In a rising interest rate environment, there is lower demand for long-dated corporate paper as investors fear a drop in prices due to rising yields. Market sentiment has been further dented as state-owned lenders, the largest buyers of government securities, have been reducing their sovereign holdings.

State lenders have been selling Rs 470 crore ($73 million) of government bonds on average every day this year, Bloomberg reported, citing data from the Clearing Corporation of India.

Last year, their net daily inflows totalled Rs 36.8 crore, and in 2016, it was Rs 300 crore a day.