The new bond adds to the 30-year and 40-year tenor debt sold, extending the nation’s yield curve, according to a borrowing plan released by the Reserve Bank of India on Tuesday.
The nation’s burgeoning life insurance and pension fund industries, driven by an expanding middle class, are changing the landscape for India’s $1 trillion sovereign debt market. The sale reflects their growing heft and helps Prime Minister Narendra Modi’s government reduce its reliance on purchases by banks to fund record borrowings.
“Investor demand has been strong, supported by the expansion of the formal sector, with households allocating a higher share of financial savings in life insurance, pensions and provident funds,” Gaura Sen Gupta, economist at IDFC FIRST Bank wrote in a note.
The authorities are trying to increase the tenure of debt sold and expect yields to decline after India’s inclusion in JPMorgan Chase & Co.’s emerging market index, a government official, who didn’t want to be named, told reporters.
The government will sell 300 billion rupees ($3.6 billion) of the 50-year bond in the October to February period, which accounts for almost 5% of its total borrowings. Also read: Fin Min leaves H2 FY24 borrow plan unchanged, to issue bonds worth Rs 6.55 lakh crore
The growing footprint of life insurers — which now own a quarter of government debt — has already impacted the nation’s yield curve. Earlier in the year, longer-dated debt was priced at lower yields than shorter-maturity paper.
The yield on the 30-year bond has fallen 11 basis points this year to 7.34%, outpacing the seven-basis point drop in the five-year note.
Modi’s administration will sell 6.55 trillion rupees of bonds in the fiscal second half, the central bank said. That’s in line with expectations and part of the record 15.43 trillion rupees full-year target.
There was concern earlier among traders that the government may increase its borrowing to fund additional spending ahead of next year’s federal elections.
“A reduction in capex or reliance on the small savings scheme are likely to be the first ports of call,” instead of extra borrowings later, according to a note from Nomura Holdings Inc. after the announcement.
The yield on the benchmark 10-year bond rose one basis point to 7.16%.
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