India will launch its first 50-year bond sale

 India will launch its first 50-year bond sale

In order to meet the increasing demand from insurance and pension funds, India will provide ultra-long maturity debt for the first time in the form of 50-year bonds.

According to a proposal presented by the Reserve Bank of India on Tuesday, the new bond complements the 30-year and 40-year tenor debt that was sold, lengthening the yield curve for the country.

Due to a rising middle class, the nation's booming life insurance and pension fund sectors are reshaping India's $1 trillion sovereign debt market. The sale underscores their increasing clout and lessens the government of Prime Minister Narendra Modi's reliance on bank acquisitions to finance 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.

As a result of India's inclusion in JPMorgan Chase & Co.'s emerging market index, the authorities are attempting to extend the maturity of the debt sold and anticipate a drop in yields, a government official who wished to remain anonymous told reporters.

In the months of October through February, the government will sell the 50-year bond for 300 billion rupees ($3.6 billion), or over 5% of its overall borrowings.Also read: Fin Min to issue bonds of Rs. 6.55 lakh crore under H2 FY24 borrow plan

The nation's yield curve has already been impacted by the expanding presence of life insurers, who now own a fourth of the nation's debt. Longer-dated debt has lower yields earlier in the year than paper with a shorter maturity.

The 30-year bond's yield has decreased 11 basis points this year to 7.34%, beating the five-year note's decline of seven basis points.

According to the central bank, Modi's government would sell 6.55 trillion rupees worth of bonds during the second fiscal quarter. That meets forecasts and contributes to the record full-year target of 15.43 trillion rupees.

Traders had already expressed fear that the government would raise borrowing to finance further spending before the federal elections next year.

Instead of additional borrowings later, "a reduction in capex or reliance on the small saving programme are likely to be the very first places of call," referring to a note from Nomura Holdings Inc. after the news.

The benchmark 10-year bond's yield increased by one basis point to 7.16%.