Credit markets are sounding warnings for other asset classes amid India’s unprecedented surge in Covid-19 cases. Firms have defaulted on at least Rs 5,700 crore ($763 million) of domestic bonds this year, the most on record for a similar period. Traders expect more. They’ve pushed spreads on A rated local corporate bonds over AAA notes to a 17-year high, a grim sign for the small businesses that tend to have those weaker ratings and that form the bedrock of the $2.7 trillion economy. That all suggests the need for further caution in the equities and government bond markets, which have held up better despite volatility. While the defaults are largely among smaller, often unlisted borrowers, they add to challenges for policy makers already grappling with one of the world’s worst bad debt ratios. On top of that, the Covid outbreak risks fanning inflation as local curbs disrupt supply chains, threatening to limit central bank options for juicing the economy.