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Govt plans to sell 50-year bond to cater to growing demand from insurance, pension funds

NEW DELHI: India will sell 50-year bonds for the first time, introducing ultra-long maturity debt to cater to the growing demand from insurance and pension funds.
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 government will sell 30 billion rupees ($360 million) of the 50-year bond in the October to February period, which accounts for almost 5% of its total borrowings.
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 were priced at lower yields than shorter-maturity paper.
The yield on the 30-year bond has fallen 11 basis points to 7.34% this year, outpacing the drop in the 5-year note which has fallen seven basis points.
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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