(Bloomberg) — India’s auction of the debut 50-year bond met with strong demand Friday, underscoring growing interest from insurance and pension funds for ultra-long papers.
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The government sold 100 billion rupees ($1.2 billion) of the 2073 bond as planned at a cutoff yield of 7.46%, the Reserve Bank of India said in a statement. That’s lower than the 7.48% forecast in a Bloomberg survey. Insurers probably lapped up the paper as they had expressed strong interest before the auction to lock in higher yields to take care of long-term commitments.
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. India’s yield curve has been nearly flat even amid record borrowing by the government as insurers stepped up purchases of long-term bonds.
It’s the insurance companies and provident funds buying at these levels, said Murthy Nagarajan, head of fixed income at Tata Asset Management. “Since we are coming toward the end of the rate hike cycle, the demand is there,” he said.
The Reserve Bank of India received 216 bids worth 402 billion rupees for the 50-year paper, more than four times the amount on offer. It sold a total of 300 billion rupees of bonds at Friday’s auction, including the 2028 and 2033 bonds.
The government plans to sell 300 billion rupees of the 50-year bond in the October to February period.
The sale of long-term bonds may help the government elongate the tenure of debt sold and keep its interest costs under control. Today’s cutoff came in lower than 7.54% yield for the 40-year paper auctioned last week.
Over one-third of the government’s fiscal second-half bond supply is in papers maturing in 30-50 years. The RBI in September said it planned to add the 50-year bond in response to market demand for ultra-long papers, extending the nation’s yield curve.
The yield on benchmark 10-year bond fell one basis point to 7.32% Friday. That on the 40-year note declined two basis points.
Issuance of long-term paper was a very specific demand made to RBI for a long time, said Umesh Tulsyan, managing director at Sovereign Global Markets in Delhi. “If the response is good, RBI will definitely continue offering papers in the ultra-long segment,” he said.
(Updates prices, adds analyst comment)
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