(Bloomberg) — Overseas investors are selling India’s government bonds, but they still have faith in the nation’s corporate debt.

Global funds cut holdings of the nation’s sovereign securities by 33.5 billion rupees ($472 million) in the first two weeks of this year after selling 11 billion rupees in December, data from the Clearing Corporation of India Ltd. show. They snapped up a net 14.9 billion rupees of corporate bonds after buying 86 billion rupees last month.

Investors are being attracted by the extra yields on company paper, which compensate for the extra risk being taken on. The spread over 10-year sovereign debt jumped to 128 basis points in early January, the most in almost a year, from 83 basis points at the end of September.

“Buying corporate paper provides some cushion and better carry,” said Vivek Rajpal, a rates strategist at Nomura Holdings Inc. in Singapore. Even though spreads have started to come back down, they still remain relatively wide on a historical basis, he said.

The extra yield on corporate bonds expanded last quarter as sovereign securities rallied following a slide in oil prices that eased the threat of inflation and as the central bank bought debt through its open-market operations. Government 10-year yields fell 66 basis points, the biggest drop in four years, while those on corporate bonds slid 34 basis points.

Aberdeen Standard Investments has advised investors to sell India’s government bonds due to concern about fiscal slippage as the ruling party gears up for an election this year. At the same time, it is buying quasi-sovereigns and corporate debt because of the high spreads, investment manager Lin Jing Leong said last week.

Aviva Investors, which limits its bond investment in India to government debt, said it is not looking at add to its holdings just now.

“There are a number of favorable factors including lower oil prices, declining inflation and the ongoing open-market purchases, but fiscal risks are rising ahead of the election,” said Stuart Ritson, portfolio manager for emerging-market debt at Aviva in Singapore.

The yield on India’s most-traded 7.17 percent bonds due in January 2028 bonds has climbed to 7.47 percent from an eight-month low of 7.22 percent last month. Yields rose four basis points on Tuesday after core inflation continued to remain sticky in December, despite easing in headline print.

“The view late last year was that the Indian fiscal situation was projected to deteriorate and government bonds haven’t adjusted to the reality of a worsening fiscal situation,” said Manu George, director of fixed income at Schroder Investment Management in Singapore. “So relatively speaking, corporates look better than government bonds.”

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